Sri Lanka PAYE tax to be abolished, uniform personal income tax on all earnings

ECONOMYNEXT – Sri Lanka is abolishing Pay As You Earn (PAYE) on salaries and withholding tax on interest up to 250,000 rupees a month, but income tax has to be paid on total incomes above 250,000 rupees a month, Minister Bandula Gunewardene said.

Personal income tax will start at a monthly income of 250,000 rupees on all incomes at 6 percent. The 250,000 rupees of income will be charged 6 percent, the 250,000 rupees 12 percent, and the next 250,000 18 percent, he said.

“This will benefit a large number of state and private sector workers at executive and management level and doctors,” Gunewardene said.

“The highest rate would be 18 percent.”

Until 2015, the highest personal income tax rate was 16 percent, but under a International Monetary Fund backed program the last administration brought back a strongly progressive tax, with the highest rate at 24 percent.

All kinds of niggling withholding taxes were also brought on interest and royalties, at a heavy political cost, but whose total revenue potential was unknown.

Withholding tax on interest would only be charged over 250,000 rupees a month.

However income tax would be charged on all incomes above 250,000 rupees, Gunewardene said.

Under PAYE tax and withholding tax, which are effectively replacements of income tax, individuals can avoid the hassle of filing income tax returns, and the government also gets cashflow steadily spread out through the year.

It is not clear when the new income taxes would be legislated. Income taxes are usually applicable for year starting April.

Sri Lanka is also cutting value added tax from 15 to 8 percent, which would be effective from December 01, Gunewardene said.
(Colombo/Nov28/2019)