Sri Lanka property tax talks face disagreement as the IMF backs a 2027 levy while the government argues other revenue measures are sufficient.
A reported dispute over the Sri Lanka property tax has emerged as the government and International Monetary Fund prepare revenue measures for the 2027 budget.
Sources familiar with budget consultations claim the IMF has proposed taxing second and subsequent residential properties. However, the government reportedly argues that the measure is unnecessary because existing and planned revenue policies can meet programme targets.
The proposal forms part of the wider revenue mobilisation programme supporting Sri Lanka’s Extended Fund Facility since 2023.
Official IMF documents confirm that Sri Lanka has committed to further work aimed at introducing property taxes during the first half of 2027. They also identify comprehensive valuation information as essential for implementing the system.
The government has reportedly told the IMF that measures planned for the 2027 budget should generate sufficient revenue without a new tax on additional homes.
Officials have also highlighted the difficulty of identifying ownership and establishing accurate property values without a reliable national database.
Sri Lanka Property Tax Faces Legal and Data Barriers
Sri Lanka’s original programme commitments considered introducing a conventional nationwide property tax earlier.
However, an IMF technical assessment identified constitutional and administrative obstacles.
The Constitution assigns important property-related taxation powers to provincial authorities. This complicates any attempt by the central government to introduce a straightforward nationwide levy.
The assessment also found major weaknesses in valuation data and property records.
Sri Lanka therefore needs a comprehensive digital database before authorities can calculate liabilities fairly and administer the tax effectively.
Manual property inspections remain costly and slow. They can also produce inconsistent valuations and increase opportunities for improper influence.
The government has started digitising historical records held by the Valuation Department. It is also developing supporting infrastructure for property valuation and taxation.
IMF Previously Proposed an Imputed Rental Tax
The IMF’s August 2024 technical report proposed an imputed rental income tax as an alternative to a conventional central property levy.
That approach would treat the estimated rental value of owner-occupied housing as taxable income. The IMF recommended thresholds and relief measures to focus the tax on wealthier property owners and reduce hardship.
The proposed measure was initially associated with the 2025 revenue programme. However, later programme documents accounted for the absence of expected gains from the tax.
Reports now suggest that the IMF may continue pressing for a property-based revenue measure, even if the government excludes a second-home tax from the 2027 budget.
The final outcome will depend on negotiations, Cabinet decisions and whether Sri Lanka can build a reliable valuation system before the agreed 2027 implementation period.
