Sri Lanka Secures Tax Relief Agreement with IMF

Colombo: Sri Lankan President Anura Kumara Dissanayake announced that his government has successfully negotiated tax relief measures with the International Monetary Fund (IMF) under the USD 2.9 billion Extended Fund Facility (EFF). This development aligns with his key election pledge to ease the country’s rigid tax system.

Addressing Parliament on Wednesday, President Anura Kumara Dissanayake, who also serves as Finance Minister, detailed significant changes, including raising the Pay As You Earn (PAYE) tax threshold. Under the revised policy, monthly incomes up to Rs 150,000 will be tax-exempt, an increase from the previous limit of Rs 100,000. “We have been able to raise the tax threshold of pay as you earn (PAYE tax) so that those who have bigger incomes pay more while those who earn pay less,” Anura Kumara Dissanayake said.

He added there would be other exemptions on VAT and withholding tax on interest incomes for retired persons. The president also announced the phased lifting of Sri Lanka’s vehicle import ban, imposed in 2020 due to dwindling foreign reserves during the COVID-19 crisis. 

From December 14, Sri Lanka allowed the importation of the first category – vehicles for passenger transport and cars for special purposes. Moreover, the import of private cars will be resumed in February 2025.

IMF-backed reforms aim to strengthen economic stability while balancing social welfare: Dissanayake 

Anura Kumara Dissanayake emphasized that the IMF-backed reforms aim to strengthen economic stability while balancing social welfare. Small and medium-sized enterprises (SMEs) will receive debt restructuring support with capped loan amounts. These measures will be included in the 2025 budget, scheduled for presentation in mid-February.

ALSO READ: Senores Pharmaceuticals' Rs 582-Crore IPO To Open On Friday

Sri Lanka recently finalized a USD 14.2 billion debt restructuring agreement involving the exchange of new bonds for existing ones to maintain fiscal sustainability. The IMF has approved a staff-level agreement, clearing the path for the fourth tranche of the bailout package.

According to reports, as of July 2024, Sri Lanka’s external debt stood at USD 37 billion, comprising USD 10.6 billion in bilateral credit, USD 11.7 billion in multilateral credit, and USD 14.7 billion in commercial debt, including USD 12.5 billion in sovereign bonds. The government remains committed to navigating economic recovery while addressing ongoing fiscal challenges.