A draft bill proposing wide-ranging amendments to the Inland Revenue Act No. 24 of 2017 has been published in an Extraordinary Gazette by President and Finance Minister Anura Kumara Dissanayake, signaling one of the most significant planned shifts in Sri Lanka’s tax framework in recent years. The proposed reforms will take effect only after parliamentary approval, but authorities say the changes are designed to broaden the tax base, improve compliance, and streamline state revenue collection as the country continues fiscal consolidation.
Among the most notable proposals is an increase in the capital gains tax imposed on profits earned from the sale of land, buildings, and shares. The current 10 percent rate is to be raised to 15 percent, while another category of gains is proposed to see a sharper rise from 10 percent to 30 percent, reflecting the government’s intent to capture a greater share of high-value transactions.
The bill also seeks to significantly expand the Withholding Tax system by bringing a range of additional professions into its scope. Under this mechanism, a 5 percent tax will be deducted at the point of payment for services and remitted directly to the Inland Revenue Department. Newly covered groups include auditors, valuers, personal trainers, sports consultants, artists, photographers, therapists, beauticians, social media specialists, brand ambassadors, and debt collectors, many of whom previously operated outside structured tax deduction channels.
As part of a compliance drive, the reforms introduce a one-time relief measure for individuals and businesses with outstanding tax liabilities. The Commissioner General of Inland Revenue will be authorized to waive interest accrued on unpaid taxes prior to March 31, 2023, provided that the original tax dues and penalties are settled in full within six months of the new law taking effect.
Administrative procedures are also set for revision. The requirement to submit estimated tax returns will be abolished from April 1, 2026, to be replaced by a system of installment payments calculated based on the previous year’s taxable income, a move intended to simplify compliance and reduce reporting burdens.
In a further effort to encourage voluntary disclosure, beginning April 1, 2025, the department will directly accept returns from individual taxpayers who declare and pay at least 120 percent more tax than in the preceding year, with proposals indicating that such taxpayers would not be subjected to additional investigations.
The amendments additionally aim to modernize regulations governing capital allowances for businesses operating under the Board of Investment of Sri Lanka, as well as entities in the insurance and investment fund sectors, aligning tax incentives with current economic policy objectives.
