President sends expectations sky-high ahead of Thursday’s Budget

• Says PAYE tax threshold will be increased, does not say how much; threshold already raised from Rs. 100,000 to Rs. 150,000
• Says Govt. in talks with private sector on basic salaries and allowances amid pledge to raise public sector wages
• President has hinted at several relief measures in recent months as he prepares to deliver 2027 Budget speech in Parliament on Thursday

President Anura Kumara Dissanayake has raised expectations of fresh tax relief in Thursday’s Budget, saying the Government expects to lift the Pay As You Earn (PAYE) tax threshold again. PAYE is income tax deducted at source from salaries.

Addressing the National Trade Union Convention in Colombo on Saturday, the President said the threshold had already been increased from Rs. 100,000 to Rs. 150,000 and that a further adjustment to it was expected in the 2027 Budget, to be presented to Parliament on Thursday.

President Dissanayake said discussions had been held with private sector institutions and business associations, following which basic salaries were raised. He acknowledged that higher basic pay alone was insufficient to give employees meaningful financial relief and said supplementary allowances had also been considered.

He said PAYE deductions on higher salaries remained an important concern, and that the Government had a responsibility to protect the interests and economic security of employees across the State, semi-Government, plantation, and private sectors.

President Dissanayake has set out a string of tax and spending relief measures ahead of Thursday’s Budget, from a staged reduction in Value Added Tax (VAT) to a further increase in the PAYE threshold, while conceding the pledges must be squared with a rising salary bill.

Addressing a ceremony at Temple Trees on 8 October where appointment letters were issued to 1,540 Grama Niladhari officers, the President set out a multi-year cut in the VAT rate. “Our objective is to provide relief to the people by reducing VAT rates over the next two to three years,” he said.

He also called for the removal of taxes on essential educational materials. “If a child has to pay a tax when purchasing a book to read, we should remove that tax,” he said.

At a rally in Gampaha on 4 October, President Dissanayake said a property tax on houses proposed under the International Monetary Fund (IMF) program had been deferred for another year. The Government has told the IMF that revenue measures planned for the Budget would be sufficient to meet targets, making the tax unnecessary.

At a rally in Akuressa on 20 September, he said the Government would remove certain taxes in the Budget and had set aside Rs. 2 billion for capital expenditure at the grassroots level. 

The Budget will also strengthen public healthcare to cut the cost of private treatment, the President said in July, and will fund 750 communication towers next year towards a target of 1,000 in three years, Grade Six education reforms, and an electric train project.

The pledges sit against a three-stage public sector basic salary increase that the President said would cost an additional Rs. 330 billion by 2027. Revenue is required to stay above 15.3% and 15.4% of GDP in 2026 and 2027 under the debt restructuring, and the Government has locked in a primary expenditure ceiling of 12.9% of GDP. The IMF program ends in March 2027, with debt service stepping up in 2028.

The Government maintains the Budget will stay within IMF parameters. Prime Minister Dr. Harini Amarasuriya told Parliament on 9 October that public sector salaries would rise through the Budget.