September 1, 2024
The Sri Lankan government has put forward a substantial proposal for personal income tax cuts, which is expected to cost the state more than 25 billion rupees annually. This proposal is currently under discussion with the International Monetary Fund (IMF) and is linked to specific revenue targets set by the IMF.
Under the new proposal, the tax threshold would be increased from Rs. 500,000 to Rs. 720,000. The marginal tax rates in various income brackets will remain the same, with a lower rate of 6% and a top rate of 36%. The proposal includes different deductions based on income levels, with a 14% deduction for a monthly income of Rs. 150,000, increasing to 20% for Rs. 200,000, 25% for Rs. 300,000, 23% for Rs. 400,000, 15% for Rs. 500,000, 8% for Rs. 750,000, and 6% for salaries exceeding Rs. 1 million. The tax-free limit is proposed to stay at Rs. 1.2 million per annum.
Treasury sources expect a response from the IMF in the next two weeks. Following IMF feedback, the proposal will be submitted to the Cabinet for approval and included in the budget for the next fiscal year.
In addition to the tax adjustments, the government has also finalized salary revisions for public sector employees, set to take effect from January 2025. The proposed increases will affect various roles, including office assistants, drivers, prosperity development officers, nurses, and principals. For instance, an office assistant’s salary is set to increase to Rs. 5,450, while a nurse’s salary will rise to Rs. 13,725, and a principal will see an increase to Rs. 23,425. For educational and police staff, the increases are similarly significant, with college of education qualified teachers seeing their salaries rise to Rs. 17,480, graduate teachers to Rs. 19,055, and police constables to Rs. 10,740.
These salary hikes will extend to the armed forces, statutory bodies, and corporations, with the total cost estimated at Rs. 160 billion. This move is part of the government’s broader strategy to enhance public sector compensation and potentially stimulate economic growth.
