• Prez says it’s a high threshold wealth tax targeting high net worth individuals not average income earners
• Oppo. claims said tax is an income not property tax

While the newly-proposed Imputed Rental Income Tax has sparked controversy, the Ministry of Finance, Economic Stabilisation and National Policies stated that the Ministry is to impose some exemptions with regards to the proposed tax, which are yet to be legally finalised thus far.

When contacted by The Daily Morning yesterday (18), Ministry's Tax Policy Advisor Thanuja Perera said that it is yet to decide the threshold of the said tax and that further developments of the particular tax policy would be done following the implementation of the threshold which is yet to be determined.

Meanwhile, President and Finance, Economic Stabilisation and National Policies Minister Ranil Wickremesinghe also assured that the proposed tax would target individuals with a high net worth rather than average income earners, aiming to alleviate concerns about its impact on the broader population. He made these remarks while making a special statement delivered in the Parliament yesterday (18). 

“We are going to have a wealth tax. There will be a very high threshold. So, 90% of the people will be exempted from this. We cannot rate businesses. We come up with the problem that rates belong to the Provincial Councils. So, we want to get the income to the Central Government,” President Wickremesinghe explained. The President’s announcement comes amidst significant public and political scrutiny regarding the proposed Imputed Rental Income Tax.

Meanwhile, Opposition figures have raised concerns about the potential impact of the proposed tax measures. Samagi Jana Balawegaya (SJB) Parliamentarian Dr. Harsha de Silva took to the social media to express his scepticism regarding the proposed imputed rent tax, which he argues is an income tax rather than a property tax. 

“Say Rs. 150,000 monthly salary; Rs. 3500 monthly tax. Now say Rs. 100,000 monthly imputed rental; tax Rs. 21,000 monthly at the same salary unless tax thresholds and rates change. Need a wide net to collect Rs. 150 billion by 2026,” Dr. de Silva posted. 

He further questioned the Treasury’s explanation, stating, “How can the Treasury raise Rs. 150 billion (0.8% of the gross domestic product) by 2026 by imputing a rent and taxing that imaginary income?”

Adding to the debate, SJB and Opposition Leader Sajith Premadasa responded to the President’s statement by emphasising the need for more efficient tax collection methods. He called for the Government to focus on identifying and taxing individuals and companies currently outside the tax net. Premadasa highlighted the importance of modernising the tax collection system through digitisation. “The Government should take measures to make tax collection more efficient and to track the individuals and companies who are not under the tax net,” Premadasa stated.

However, issuing a statement, the Ministry of Finance, Economic Stabilisation and National Policies stated that the recent publication of the International Monetary Fund (IMF) supported Extended Fund Facility (EFF) programme-related documents make reference to a proposed property tax to be implemented as an imputed rental income tax. The Ministry said that one of the key reasons for Sri Lanka’s deep, complex and unprecedented economic crisis is the sharp decline in Government tax revenue that led to high budget deficits and the resultant escalation of public debt to unsustainable levels. Furthermore, the Ministry explained that the main revenue measure expected to help achieve next year’s (2025) target is a wealth tax that is focused on property. 

“From the outset of the IMF programme approval in March of last year (2023), the revenue measures expected in 2023, this year, and 2025 have been clearly presented in the public domain. The envisaged property tax is in an advanced stage of design and therefore, it is premature to outline specific details of rates and thresholds,” it mentioned. 

The Ministry expressed that however, the focus of this tax is on high wealth individuals, and not on average income earners. “This objective will be achieved by a suitable tax free threshold to ensure that the tax is targeted on very high value properties or multiple properties that are owned by wealthy members of society,” it added.

Attempts made to contact the State Ministers of Finance Shehan Semasinghe and Ranjith Siyambalapitiya, and the Secretary to the Treasury Mahinda Siriwardana proved futile.