The International Monetary Fund (IMF) has proposed a property tax, which economists believe could discourage high-income earners from excessively accumulating wealth in real estate and luxury properties, potentially diverting their funds into more productive investments.
Professor Wasantha Athukorala from the Department of Economics at the University of Peradeniya highlighted that the top 20 percent of income earners in Sri Lanka control 21.3 percent of the country’s total income. However, the nation has consistently struggled to effectively assess and tax their property.
In March 2023, the IMF estimated that Sri Lanka could generate Rs. 436 billion from property taxes in 2025 alone, which would amount to 8 percent of the total tax revenue for that year. The projected earnings from property tax were expected to increase in subsequent years, reaching Rs. 472 billion in 2026, Rs. 512 billion in 2027, and Rs. 554 billion in 2028. However, a revised IMF report published in December 2023 slightly lowered these expectations, forecasting Rs. 411 billion in 2025, Rs. 447 billion in 2026, Rs. 485 billion in 2027, and Rs. 526 billion in 2028.
Despite these projections, the IMF decided to remove the property tax recommendation in its third review in June 2024 after the Sri Lankan government cited difficulties in valuing the assets of the super-rich. However, Professor Athukorala stressed the importance of implementing the tax, warning that failure to do so would lead to an increased reliance on indirect taxation, ultimately burdening low-income groups.
Property taxes are a common practice in many countries, generating significant revenue. In Israel, such taxes account for 4.05 percent of GDP, while in France, they contribute 3.8 percent, in the United States 2.9 percent, and in New Zealand 1.9 percent. Countries like India and Australia also have similar taxation policies in place.
Emeritus Professor of Economics Sirimal Abeyratne stated that the accumulation of excess wealth by the rich has led to a surge in real estate investments outside the formal banking system, which results in significant amounts of wealth being lost to the broader economy. He emphasized that introducing a property tax could help redirect this wealth toward economic growth through investment. Additionally, economists argue that implementing such a tax could serve as a mechanism to prevent the acquisition of property through illicitly obtained funds, promoting greater financial transparency.
