Sri Lanka’s sweeping Inland Revenue amendment signals higher capital gains taxes, wider withholding tax nets, and compliance reforms that could reshape business strategy, property sales, and professional earnings across the country.
A Bill to amend the Inland Revenue Act No. 24 of 2017 has been published in an Extraordinary Gazette by the Minister of Finance, Planning and Economic Development, President Anura Kumara Dissanayake on February 24, setting the stage for major tax reforms in Sri Lanka. The proposed amendments will take effect only after parliamentary approval, but they already indicate a decisive shift in fiscal policy aimed at broadening the tax base, improving tax compliance, and strengthening government revenue collection.
Among the headline changes is a sharp revision of the capital gains tax framework. The existing 10 percent rate on profits from the sale of land, buildings, or shares is proposed to increase to 15 percent. In certain categories, the rate is expected to rise significantly to 30 percent, a move that could alter investment strategies and property market dynamics.
The Bill also expands the Withholding Tax system by bringing new professions and freelancers into its scope. A 5 percent tax will be deducted at source for services provided by auditors, valuers, personal trainers, sports consultants, artists, photographers, therapists, beauticians, social media experts, brand ambassadors, and debt collectors. This step is designed to formalize income reporting and improve Inland Revenue Department oversight.
A one time tax relief mechanism is included, allowing the Commissioner General to waive interest on unpaid taxes accrued before March 31, 2023, provided the principal tax and penalties are settled within six months of enactment.
Structural reforms follow. From April 1, 2026, estimated tax returns will be abolished and replaced with installment payments based on prior year taxable income. Additionally, from April 1, 2025, taxpayers declaring at least 120 percent more tax than the previous year may receive streamlined return acceptance without further investigations. Updates to capital allowances for BOI approved businesses, insurance firms, and investment funds are also proposed.
