Sri Lanka is compelled to introduce a nation-wide property tax and a gift and wealth tax with minimal exemptions, according to a deal reached between the International Monetary Fund (IMF) and the government.
“The government has reached a consensus with the IMF to enforce a nationwide real property tax including a review of related fiscal transfers, requesting technical assistance as needed,” IMF programme documents highlighted.
The introduction of a property tax and wealth transfer tax is envisaged in 2025 as it takes some time because of preparation, senior Finance Ministry official said.
The real estate asset valuation system has to be prepared and it takes some time to develop and this important tax reform is to be implemented in 2025.
It is important to make the tax package more progressive with more contribution from relatively high-income earners, he added.
“Real estate however has been protected from the inflation tax of the Central Bank and the government will also introduce a gift and inheritance tax with a tax-free allowance and minimal exemptions,” the documents said.
“Preparatory work for these tax reforms will commence by mid-2023, supported by IMF technical assistance," Ministry official disclosed.
The Treasury is trying to raise taxes to maintain a large public service and cabinet, under revenue based fiscal consolidation.
Under revenue based fiscal consolidation in a previous programme, spending to GDP went up from 17 to around 19 per cent of GDP, he said.
The government plans to reduce existing tax exemptions on Value Added Tax (VAT) by 2024, remove the simplified VAT system, and expedite its reimbursement. He added that Estate Duty will be introduced as a property tax by 2025.
The standard corporate income tax rate has been raised to 30 per cent, and sectoral tax holidays have been eliminated.
The PAYE tax rate has been raised to 15 per cent from 12 percent, while the tax exemption limit has been reduced to Rs. 80 million from Rs. 300 million.
The efforts to increase tax revenue should be pursued in a growth friendly manner while protecting the poor and the most vulnerable. And it is important that those who can afford it make commensurate contributions to the financing of necessary government expenditures, the IMF suggested.(Bandula)