Low-income earners’ tax burden to be eased

In an effort to cushion low-income earners from the unintended impact of recent tax amendments, Sri Lanka is set to introduce a self-declaration system that will allow individuals earning below the tax-free threshold to be exempted from the revised 10 percent retention tax on interest income.

The proposal, approved by the Cabinet of Ministers, will apply to domestic depositors with an annual income not exceeding Rs. 1.8 million, the current threshold for income tax liability. The initiative was presented by President Anura Kumara Dissanayaka in his capacity as Minister of Finance, Policy Planning and Economic Development.

The development follows growing concern over the Inland Revenue (Amendment) Act No. 2 of 2025, which came into effect on 1 April. The Act doubled the withholding tax on interest from 5 percent to 10 percent, affecting even those whose income levels fall below the taxable limit, sparking calls for immediate relief.

While the increased tax is aimed at improving fiscal revenues, its blanket application on all depositors, regardless of income level, drew criticism for disproportionately impacting small savers. The introduction of the self-declaration system is expected to act as a safeguard, ensuring low-income individuals are not unfairly taxed.

To support the implementation, the Inland Revenue Act No. 24 of 2017 will be amended further, with provisions to make it mandatory for all individuals to furnish a Tax Identification Number (TIN) when opening any type of bank account. Authorities believe this will improve tax administration and prevent misuse of the exemption mechanism.