President Anura Kumara Dissanayake announced yesterday that a revision to income tax will be a key component in the upcoming government budget to be presented in March. A reduction of the PAYE (Pay As You Earn) tax is confirmed under these new proposals.
Speaking on Sirasa TV’s “Satana” program on November 6, the President clarified his commitment to the International Monetary Fund (IMF) program while also planning tax reforms as promised. He stated that his economic team had discussed reducing taxes on several items with the IMF, honoring pledges made to the public during the presidential campaign. According to the President, economic goals must prioritize citizens’ ability to sustain their livelihoods; otherwise, any progress would lack meaningful impact.
He outlined the following in detail:
“Our goal is to build an economy that serves everyone. We are assuming leadership in a government committed to an agreement with the IMF, which has set certain parameters for our financial discipline.
The target of increasing the National Income
One target is to increase our national income as a percentage of GDP to 15 percent by 2025. This year it stands at 13.8 percent, and next year we aim to reach 15 percent. To achieve this, we need an additional 1.2 percent of GDP in revenue next year. Another key goal is maintaining a primary account surplus of 2.3 percent by 2025. Our long-term objective is to reduce the national debt burden to 95 percent by 2032. These parameters and more are guiding our efforts.
We have two choices: exit this program and attempt to manage independently or continue within the program and pursue positive measures. I believe our economy cannot withstand the shock of an exit at this time. Before joining the program, there may have been other options, but now we are deeply embedded in it.
Our economy is on a fragile path, and we cannot afford a significant disruption. Thus, we must proceed within the program’s framework, presenting challenges as we draft the 2025 budget.
Replace the losing money with tax reductions
Reducing taxes means we must find ways to replace any lost revenue. We also promised to reduce VAT on certain items. Should we do this, the need to generate over 1.2 percent of additional revenue remains a challenge.
It is essential to pursue our economic goals without harming citizens’ livelihoods. Achieving economic targets while respecting their needs is crucial. Therefore, officials have been sent to Washington for discussions with the IMF. They will return to Sri Lanka on the 14th of this month, and I am hopeful for a constructive outcome. PAYE tax adjustments are forthcoming in the next budget, ensuring tax relief.
In addition to the PAYE tax, we aim to eliminate VAT on specific items. A new budget document is expected to pass between the end of February and early March, meaning PAYE tax relief will be reflected in March salaries. For lower-income earners, the percentage of tax relief will be more substantial, while higher earners will receive a smaller relief percentage,” explained the President.
