Thursday Oct 30, 2025
Thursday Oct 30, 2025
Thursday, 30 October 2025 06:04 - - {{hitsCtrl.values.hits}}
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Verité Research Sri Lanka Economic Policy Group Member Prof. Mick Moore
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Sri Lanka’s property tax system is delivering negligible revenue and will not support the Government’s plan to introduce a new property tax by 2027 unless the valuation method is modernised, according to a new study published by Verité Research.
The paper, Property Taxes in Sri Lanka: Proposal for a More Effective Valuation Method, authored by Verité Research Sri Lanka Economic Policy Group Member Prof. Mick Moore, argues that Sri Lanka should replace manual, site-inspection valuations with digital, mass-appraisal techniques to create a fair, enforceable, and administratively viable tax base.
The Government has agreed in principle to introduce a new property tax by 2027 under the International Monetary Fund’s (IMF) Extended Fund Facility (EFF). Prof. Moore says the commitment alone will not yield results without changing how properties are valued.
“The key to unlocking change lies in the valuation system,” he writes, adding that digital valuation “provides an accessible, low-cost method for breaking the current systemic logjam.”
He describes the status quo as a “low-level equilibrium,” where little effort is invested and little revenue is collected.
The country’s main property tax, known as the rate assessment system, raised less than 0.1% of GDP in 2021-22. Verité notes this is low even by developing-country standards.
Stamp duties on property transactions and property taxes together contributed about 2% of total Government revenue in that period, with roughly two-thirds coming from stamp duties.
At the local level, the incentives are weak. In 2020, rates and other local taxes provided about 8% of council revenues, while Treasury grants accounted for about 80%. Only around 7% of council staff had revenue-collection responsibilities.
Compliance is thin.
The Colombo Municipal Council estimates that only about 20,000 of roughly 110,000 commercial properties regularly pay property tax. Individual bills are often so small that they may not cover the cost of collection.
Prof. Moore traces poor performance to five weaknesses in the valuation regime.
Many new buildings are not registered for tax when construction is approved, indicating evasion. Valuations for new properties are often set by local authority staff who are not trained valuers and who lack market rental databases, creating scope for undervaluation and collusion.
Extensions to buildings and local infrastructure upgrades rarely feed into revised valuations, so tax assessments drift away from market reality.
General revaluations by the Government Valuation Department, meant to occur every five years, are infrequent in practice.
Between 2022 and 2023, the Department issued new annual valuations for about 120,000 properties, only about 3.5% of the 3.5 million properties on record, implying that an average local authority might see a block revaluation roughly once in three decades.
Even professional revaluations are exposed to bias and bribery risks because they rely on interior inspections and subjective judgments without a reference database of local rents.
The report recommends a shift to Points-Based Valuation (PBV), an approach widely used internationally and also known as Computer-Assisted Mass Appraisal (CAMA) or Automated Valuation Models (AVM).
PBV maps uniquely identify all properties using aerial imagery and Geographic Information Systems (GISs), collects standardised external data and photographs without entering buildings, calibrates a transparent valuation model to local market samples, then generates mass valuations and the tax roll.
Once established, the system can automate billing and payments, continuously update for new construction and major modifications, and be recalibrated periodically to reflect market changes.
Prof. Moore says the operational timelines are practical.
Mapping a city of about 100,000 properties can be completed in one to four weeks once imagery is available. A trained field team of around 100 can typically gather standardised data in about three months.
He cites current international practice to show feasibility. The UK Valuation Office Agency is using model-assisted valuation to help revalue 1.5 million domestic properties in Wales for council tax in 2025, and close to half of real-estate appraisals globally now involve PBV, CAMA or AVM techniques.
The Government Valuation Department has begun digitising valuation records and building a nationwide Sales Price and Rents Register.
Prof. Moore calls these “a very first step,” noting that the existing data are inadequate, inaccurate, and often outdated, and that legacy records list properties but not owner identifiers, complicating enforcement and integration with other taxes.
He argues that successful reform will require coordination among several Government organisations and targeted capacity-building.
He proposes that the Government encourage and support the creation of one or more groups of people with digital skills to pilot PBV, adapt it to local conditions, and work with a few councils to demonstrate results. “Initial success should generate further demand for PBV,” he writes.
The study sets out the political-economy case for moving now.
Prof. Moore says the current environment is relatively conducive to reform, and that property taxation is both fair and growth-friendly.
It is hard to evade because buildings are visible and immobile. It tends to shift the burden towards those better able to pay, since higher-income households hold more property.
It discourages speculative hoarding of land and large houses by making it more costly to sit on undeveloped or under-used assets, easing pressures on land for housing and productive use.
Prof. Moore cites research suggesting automated models can reduce unfair valuations compared with systems that grant broad discretion to individual assessors.
He argues that PBV can unlock the stalemate at a relatively low cost and with minimal change to statute. The tax base and structure need not be rewritten. “It is the valuation method that needs changing,” he says.
He also highlights complementary steps already underway. From 2024, the grant to local councils for recurrent expenditure was cut by 20%, with plans to repeat the cut annually.
Prof. Moore suggests this can sharpen incentives for councils to build their own revenue capacity and could give local staff a direct interest in better collections, including through PBV.
He adds that PBV’s flexibility matters. The Colombo Municipal Council could likely manage PBV with modest central support, while rural and town councils would require more assistance. He sees merit in allowing councils discretion on when and how to adopt PBV, with short-term revenue top-ups from the central Government to encourage early movers.
The study links better valuations to broader tax integrity. A functional Sales Price and Rents Register and a PBV-based cadastre would help enforce capital gains tax on property, improve the accuracy of stamp duty administration, and strengthen anti-evasion controls across property-linked taxes.
Over time, Prof. Moore prefers capital-value assessments to rental-value assessments because capital prices are more observable and can be cross-checked against market data, but he notes the country could still retain rental valuation while moving to PBV in the near term.
Prof. Moore cautions that digitisation alone will not deliver fairness or revenue.
Data must be standardised, valuation models must be transparent and auditable, and revaluation must become routine so that extensions, new construction, and local infrastructure upgrades are captured promptly.
He urges separating the political decision on tax rates, which councils can vary annually, from the technical task of producing uniform valuations so that like properties are treated alike within a council area.
“The question is not whether Sri Lanka should explore this technology but how long it can afford to ignore it,” Prof. Moore writes.
There will be pressure to ignore reforms, he warns. “It is much less disturbing for existing institutions and interests. People owning more valuable properties will welcome any delay. The start-up time and costs required to initiate PBV will likely be exaggerated”.
With a 2027 timeline on the table and fiscal space tight, the report argues that PBV is the practical route to a fair and enforceable property tax that can underpin both local governance and national fiscal stability.
