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Property tax likely to be chosen over comprehensive wealth tax: KPMG

10 November 2023 09:10 am - 7     - {{hitsCtrl.values.hits}}

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  • Sri Lanka has committed to revising the property tax system and introducing a wealth transfer tax as per its agreement with the IMF
  • Sri Lanka also plans to introduce a gift and inheritance tax with tax-free allowances and minimal exemptions
  • Challenges remain, particularly regarding property valuation, tax calculation, and collection mechanisms

By Shabiya Ali Ahlam
As Sri Lanka explores various avenues to enhance its tax revenue, it is likely that the country will opt for a property tax instead of implementing a comprehensive wealth tax, according to KPMG Sri Lanka.

As Sri Lanka has continued to show hesitancy in bringing in direct taxes, resulting in the country having a dangerous direct-to-indirect tax ratio of 20:80 percent, a property tax over a wealth tax is highly possible, said KPMG Tax and Regulatory Principal Suresh Perera, addressing a webinar on the topic last evening.

To reach a primary fiscal surplus of 2.3 percent of GDP by 2025, Sri Lanka has assured the International Monetary Fund (IMF) to revamp the property tax system and introduce a wealth transfer tax. 

In particular, Sri Lanka is slated to introduce a nationwide real property tax, and adjust the system of transfers between the central and provincial governments.
The country has also committed to introduce a gift and inheritance tax with a tax-free allowance and minimal exemptions. 

Preparatory work for these tax reforms is supposed to have commenced by mid-2023, supported by IMF technical assistance.

According to KPMG Sri Lanka, the primary reason for imposing the property tax is to have it as an incentive for efficient land use. While it is a tax base that cannot be withdrawn, it helps to establish an autonomous revenue source for the local government.

However, there are issues in the area around property tax that need to be addressed before its implementation, Perera said.

The challenge is how the properties will be valued, on what value will the next tax be collected, and who will collect the tax.

“According to what I hear, since Sri Lanka has a system of collecting taxes from the real estate properties paid to the local government authorities, it is unsure if they are going to use the same mechanism for collection or they’re going to bring a different statute and appoint a different collection authority like the Commissioner General of inland Revenue to collect the taxes,” he said. 

“But to me, in the implementation of the property tax, the challenge is going to be the valuation of the property. What are the values? What is to be taken at the value for the calculation of the property tax? Rate is a simple thing,” added Perera.

In drafting the property tax laws, Perera pointed out that some of the areas that need attention are: defining the tax base, the valuation methodology, identifying the parties responsible for payment and the collecting authority, determination of the tax rate, and the assignment of the administrative function and tax revenues among levels of government.


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  Comments - 7

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  • Kandiah Balendran Friday, 10 November 2023 11:06 AM

    Tax consultants like Suresh help big guys to evade taxes and ordinary people bear the burden.

    Sivalingam Friday, 10 November 2023 11:07 AM

    Super rich have already hidden some of their wealth overseas.

    Premalal Perera Friday, 10 November 2023 11:26 AM

    The next tax could be for breathing. It is so suspicious that the IMF is not requiring the control of wasteful spending. When the tax burden goes beyond your means the more high income earners leave the country. This will reduce the tax base.

    Percy Wijenayake Friday, 10 November 2023 11:33 AM

    Valuation of property in Sri Lanka is a complex issue because value of land exchanged is undervalued to lower the stamp duty. Lots of under the table deals are going on.

    TAX PAYER SINCE 1975 Friday, 10 November 2023 12:23 PM

    DEMONETISE RS 5000

    Sam Friday, 10 November 2023 02:10 PM

    If you have to do it, do it on stories and sqft as value is to difficult!

    Mohan Saturday, 11 November 2023 09:55 PM

    They should try to reduce tax evasion rather than trying to introduce more taxes.


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