Personal Income Taxation – A growing burden for Sri Lankans and economy

Monday, 7 September 2026 03:59 - - {{hitsCtrl.values.hits}}

Sri Lankan resident citizens have to pay tax on interest income which could go up to 36%, whereas on the other hand, non-resident Sri Lankan citizens on the same source of Sri Lankan Rupees are taxed at the rate of 10%. Unless we have a fair and justifiable tax regime, the future is going to be bleak for Sri Lanka

By Cecilia Page

Sri Lanka’s economy has been adversely impacted due to the brain drain of doctors, engineers, university professors, white collar and skilled workers. All major sectors such as health, tourism, education, construction, information technology and the financial sector have been impacted. The brain drain has resulted in appointing foreign nationals to fill these gaps, and if this continues it would have a devastating impact on the economy.

All citizens are entitled to have a reasonable tax-free income and sustainable tax rates and slabs. It is a fact that the cause of the brain drain is due to the high taxes which most of the taxpayers are not in a position to pay. In addition, the Sri Lankan resident citizens have to pay tax on interest income which could go up to 36% whereas on the other hand, non-resident Sri Lankan citizens on the same source of Sri Lanka Rupees are taxed at the rate of 10%, which is a final tax for them.

Due to this loophole, large Sri Lankan deposit holders have been advised to transfer large portions of their deposits to their spouse/children who become non-residents and be entitled to the 10% final tax. This is incredibly unfair to the citizens who remain and serve their country.

Interest income for both resident and non-resident Sri Lankan citizens should be taxed at the same rate of 10% and the tax should be final.

How can lower- and middle-income earners be expected to provide for their families and save when they are required to pay Rs. 420,000 in tax on an annual income of Rs. 2,500,000 above the tax-free threshold of Rs. 1,800,000, and thereafter pay tax at 36%?

Unless we have a fair and justifiable tax regime, the future is going to be bleak for Sri Lanka.