The Sri Lanka Inland Revenue Department (IRD) has released details of the Inland Revenue (Amendment) Act, No. 2 of 2025. Certified on 20 March 2025, the new tax regulations take effect from 1 April 2025.
Key changes include:
- Higher tax-free allowance: The monthly tax-free income threshold has been raised from LKR 100,000 to LKR 150,000, meaning individuals can now earn up to LKR 1.8 million annually before paying income tax.
- Revised tax brackets: The lowest tax band, which applies a 6% tax rate, now covers annual incomes up to LKR 1 million, providing some relief for lower-income earners.
- Increase in withholding tax on interest: The advance income tax rate on interest and discounts has doubled from 5% to 10%.
- End of certain tax exemptions: Income from export services and foreign earnings remitted through Sri Lankan banks will no longer be tax-free. These earnings will now be taxed at 15%.
- Higher corporate tax for certain sectors: Businesses in betting, gaming, tobacco, and liquor will see their corporate tax rate rise from 40% to 45%.
Earlier, Sri Lanka announced a series of tax reforms through proposed legislation published on 21 February 2025. The changes, affecting VAT and income tax, will be implemented in phases from April 2025.
