Sri Lanka’s withholding tax remains among lowest in the world: Verité Research

Withholding tax in Sri Lanka remains at the bottom of countries that tax interest income, even after the increase in withholding tax on interest income from 5 percent to 10 percent in April 2025, the Verité Research said.  

“Sri Lanka raised its withholding tax on interest income from 5 percent to 10 percent in April 2025. That sounds like a big move. In global terms, it is not. Even after the increase, Sri Lanka remains in the bottom 10 percent of countries that tax interest income. That leaves room to raise the rate further,” it said.  

Data from the KPMG Global Withholding Taxes Summary 2024 show that Sri Lanka’s 10 percent rate is low by both income-group and regional standards. The average tax rate is 16 percent both among the middle-income countries and among South Asian peers. Sri Lanka sits well below both averages making its WHT tax rate an outlier.  

The gap is even clearer when looking at individual countries. India and Bangladesh tax interest income at 20 percent. Many high-income countries apply rates above 30 percent.   

Among the countries included in the analysis, Sri Lanka’s rate ranks at the bottom, with only six of 98 countries having a lower rate than Sri Lanka’s.   

Sri Lanka has improved tax collection in recent years, but total government revenue, relative to GDP, remains low compared to other countries in South Asia. Income tax registration levels is especially low compared to Improving income tax compliance, therefore, the country needs a tax system that collects more efficiently and more predictably. A stronger withholding tax on interest income would help do both. Sri Lanka collected LKR 175 billion in 2025 from interest income at a 10 percent rate. The estimated collection for 2026 at the 10 percent rate is LKR 185 billion. A 15 percent rate could increase revenue by 50 percent, to about LKR 278 billion. That would mean an additional LKR 93 billion.