Imputed Rental Income Tax to Boost Revenue?

Sri Lanka to Introduce Imputed Rental Income Tax to Boost Revenue?

by Zulfick Farzan 14-06-2024 | 2:20 PM

Colombo (News 1st): In a bid to sustain revenue mobilization efforts, Sri Lanka will likely introduce an imputed rental income tax on owner-occupied and vacant residential properties starting April 1, 2025. This new tax measure comes as a substitute for the delayed property tax initially planned for 2025 but faced institutional challenges.

The International Monetary Fund (IMF) staff review highlighted this approach following a technical assessment, deeming it an appropriate measure to maintain the country’s revenue path.

This move aligns with the IMF's recent staff review, which set a higher primary balance target for Sri Lanka in 2024. The 2024 Budget aims for a primary surplus of 0.8% of GDP. Stronger revenue in 2023 and approved budget measures are expected to boost tax revenue by 0.3 percentage points to 12.4% of GDP. With stable spending, the primary surplus is projected to reach 1% of GDP in 2024.

The IMF highlighted that this larger surplus provides an additional buffer for higher interest payments and reduces domestic financing risks. Locking in this overperformance will lower the revenue adjustment needed by 0.4 percentage points in 2025 and offset lost revenue from the postponed property tax.

To further enhance revenue, the government is expected to also lift import restrictions on motor vehicles, contributing to overall revenue gains. A comprehensive package of new tax policy measures is expected to be submitted to Parliament by the end of June 2024 and approved by the end of July 2024, taking effect in January 2025.