Imputed rental tax to be implemented in 2025

Withholding tax increased from 5% to 10%

President Anura Kumara Dissanayake yesterday told Parliament that the PAYE tax threshold be increased from Rs. 100,000 to Rs. 150,000.

“We held discussions with the IMF and were able to raise the tax threshold from Rs. 100,000 to Rs. 150,000 per month,” President Dissanayake said.

President Dissanayake said that the Withholding Tax would be increased from 5% to 10% and tax on services exports would be reduced to 15% from 30%.

The President said: “During the initiation of the third review, we decided to reduce the burden of the Pay-As-You-Earn (PAYE) tax imposed on professionals in our country. There was significant dissatisfaction regarding this tax among professionals such as university academics, doctors, and bank officials.

Following discussions, we were able to increase the tax-free threshold from LKR 100,000 to LKR 150,000. Additionally, the first band of the Personal Income Tax (PIT), taxed at 6%, was extended from LKR 600,000 to LKR 01 million. Accordingly:

• An individual earning a monthly income of LKR 150,000 pays zero tax.

• An individual earning LKR 200,000 is exempted from 71% of the tax they would have otherwise paid.

• An individual earning LKR 250,000 is exempted from 61% of the tax.

• An individual earning LKR 300,000 is exempted from 47% of the tax.

• An individual earning LKR 350,000 is exempted from 25.5% of the tax.

What does this mean? We have successfully provided greater relief to lower-income earners while offering reduced benefits to higher-income earners, achieving a fair and balanced outcome through this review.”

“Immediately after the conclusion of the general election, on 16 Nov., we began the third review discussions with the IMF. During the second review, several preconditions and agreements were reached by the previous government. One such agreement was the imposition of an imputed rental income tax, which is scheduled to be implemented in 2025, as agreed upon during the second review,” the President said, adding that vehicle imports would resume on 01 Feb. 2025, and that would be carried out under a structured programme.

The President said the government would resume vehicle imports in three stages.

The import of buses used for passenger transport and vehicles used for special services had begun on 14 Dec., 2024, he said, stressing that Sri Lanka would not face a foreign exchange crisis due to this decision.

“Through lengthy discussions with the Central Bank, the government has estimated the amount of dollars that would be spent due to the importing of vehicles and the impact on the economy. In order to strengthen our economy, we must reopen vehicle imports,” he added.

The President said the suspension of the parate execution law had been extended until March 2025.

The law was previously set to remain suspended until 15 December, 2025, following a conditional approval of the Committee on Public Finance (COPF) under the previous Government.

President Dissanayake said the decision to extend the suspension of parate executions by three and a half months had been made following concerns raised by Sri Lanka’s banks, regulators, and small and medium enterprises (SMEs) about challenges in loan repayment and the impact of the law on struggling businesses.

However, he cautioned that such action could have an adverse impact on banks and financial institutions, stressing the need to balance support for SMEs while protecting the banking system.

President Dissanayake said that the total outstanding debt currently stands at Rs. 1,385 billion, involving 752,886 debtors. Of these, 99% are defaulters with loans of less than Rs. 25 million, he said.

“Defaulters who have loans below Rs. 25 million will be given an opportunity to restructure their debt until 12 December, 2025. They must present a debt restructuring plan to their banks by March,” the President said.