Sri Lanka to implement the proposed Imputed Rental Income Tax from the second quarter of 2025 while individuals with more than one house that have not been rented out will be subjected to the tax after Government valuation, State Minister of Finance Ranjith Siyambalapitiya said.

Speaking to TV Derana on Tuesday (25), he said that the imputed rental income tax proposed by the International Monetary Fund (IMF) second review will be implemented in the second quarter of 2025.

The State Minister said while the first house will be exempted, individuals with a more than one house which has not been rented out will be subjected to the tax as the rental income of a house is anyway taxed under the income tax.

He added that individuals with holiday homes in various parts of the country will be primarily focused through the imputed tax.

Moreover, he said that the tax that an individual should pay for having a second house which has not been rented will depend on the government valuation done on how much rent income the owners can collect if that house is rented.

However, the IMF staff report states that the Imputed rental income is the deemed income that homeowners could earn if they rented out their homes and that the tax is imposed on the income of individuals (rather than real property itself) and thus raises central government revenue in accordance with the constitution. 

Under this regime, it is expected that primary residences were exempt and the assessed values for rating purposes were used to determine the base. Given the broad exemption and the use of outdated and downward biased annual values, the tax generated hardly any revenue.

The tax is expected to be fully operationalised in 2026 while Siyambalapitiya said that the tax is projected to add 0.2% of GDP to the state revenue in 2025 and 0.4% in 2026.