The President of Sri Lanka presented a series of tax reform proposals to Parliament on 18 December 2024, with several changes set to take effect in 2025.
One of the key changes is a revision to the personal income tax structure, effective 1 April 2025. The monthly tax-free allowance will increase from LKR 100,000 to LKR 150,000, and the 6% tax rate will apply to annual incomes up to LKR 1,000,000, up from LKR 500,000.
The withholding tax on interest will rise from 5% to 10%, though individuals earning less than LKR 150,000 per month will be exempt.
Starting 1 April 2025, an 18% VAT will be applied to digital services, based on the consumer’s location. Additionally, the current exemption on income from exported services will be removed, and this income will be taxed at 15%.
Corporate tax rates for industries such as betting, gaming, tobacco, and liquor will increase from 40% to 45% from 1 April 2025.
VAT exemptions for locally produced liquid milk and yogurt will be reinstated from 1 April 2025. The Simplified Value Added Tax (SVAT) scheme, which helps exporters and zero-rated suppliers with VAT refunds, will continue.
Finally, stamp duty on leases will rise from 1% to 2%, effective 1 January 2025.
These reforms are aimed at increasing government revenue and streamlining the tax system to support economic stability.
