Tuesday Oct 20, 2026
Tuesday Oct 20, 2026
Tuesday, 20 October 2026 05:21 - - {{hitsCtrl.values.hits}}
The Personal Income Taxation of Sri Lanka has adversely impacted the economy and affected the livelihood of the working-class and young professionals who are the backbone of our economy.
Having the highest tax rate of 36% is not an issue, however all citizens should be entitled to have a reasonable tax-free income with sustainable tax rates and slabs. Taxing very low-income earners costs more in administrative collection efforts than it yields in actual revenue.
In today’s context, when families are struggling to make ends meet, reducing the tax-free allowance to a mere Rs. 150,000 per month and increasing tax rates from 6% to 36% on small slabs is punitive. The taxes have resulted in a mass exodus of doctors, engineers, bankers, university professors, white collar and skilled workers. The exodus has affected major sectors, and businesses are forced to scale down their operations, because all of the emigrants’ process knowledge and business experience have departed with them too.
Taxing people at source is an easy form of collecting taxes. It is most unjust to use this mandatory collection on those who are struggling to make a living when a large number of high-income individuals blatantly evade paying taxes either by not having tax files or by not declaring their full income.
It is discriminatory that resident Sri Lankans have to pay tax on interest which goes up to 36%, whilst for non-resident Sri Lankans, the withholding tax rate of 10% is a final tax on the same Rupee deposit sources. It should be noted that wealthy Sri Lankan citizens have been advised by their tax advisors to transfer their Rupee deposits to closely connected persons who are or will take up non-resident status and pay tax at 10%, which is the final tax. The 10% Final Withholding Tax appears to be a form of tax avoidance granted to non-resident Sri Lankans.
It would be more equitable and beneficial to fix the Withholding Tax rate on all Rupee deposit holders, both resident and non-resident Sri Lankans, at 15%, and make it a final tax, which would ensure certainty of tax revenue. This would also encourage the savings vital to increasing the country’s capital stock. It should be noted that funds deposited in banks/financial institutions are after paying the relevant taxation on earnings, and as such taxation on interest is double taxation.
If every Sri Lankan pays his/her taxes, tax rates could come down in the future. Those responsible for tax policy should be independent and follow the four basic canons of taxation, which is Equity (citizens should pay taxes based on their ability to pay), Certainty (rules of taxation must be clear and predictable), Convenience (be collected at the most convenient time and in the most convenient manner for the taxpayer), and Economy (cost of collecting the tax should be as low as possible)
