Adjustments to Personal Income Tax Structure in Sri Lanka
The Sri Lankan government has announced a significant reform to the personal income tax structure, offering much-needed relief to individual taxpayers. Effective from April 1, 2025, the monthly tax-free income threshold has been increased from LKR 100,000 to LKR 150,000, a move aimed at easing the financial burden on lower- and middle-income earners.
Key Highlights of the New Income Tax Changes
1. Increased Tax-Free Threshold
- Previous Threshold: LKR 100,000/month (LKR 1.2 million/year)
- New Threshold: LKR 150,000/month (LKR 1.8 million/year)
This means individuals earning up to LKR 150,000 per month will no longer be liable to pay income tax, providing greater disposable income and potential for savings or spending.
2. Adjusted Tax Brackets
The government has also introduced revised tax slabs to reduce the rate of taxation on lower and middle tiers of income. While the full structure will be released in the Inland Revenue guidelines, early reports indicate:
| Income Range (Monthly) | New Tax Rate | Previous Rate |
|---|---|---|
| LKR 150,001 – 200,000 | 6% | 6% |
| LKR 200,001 – 300,000 | 12% | 18% |
| LKR 300,001 – 500,000 | 18% | 24% |
| LKR 500,001 – 1M+ | 24–36% | 30–36% |
Who Benefits from These Changes?
This reform is targeted at:
- Middle-income professionals such as teachers, engineers, doctors, and small business owners
- Freelancers and gig workers, many of whom fall into the LKR 100,000–300,000 range
- Young professionals and recent graduates entering the workforce
- Retirees with pensions or rental income who were previously pushed into the taxable bracket
Economic Rationale Behind the Move
Sri Lanka is undergoing a period of economic stabilization and reform following IMF-backed fiscal restructuring. The government recognizes the rising cost of living, especially in urban areas, and is now shifting its tax policy to:
- Encourage formal income reporting
- Widen the tax net by making compliance less burdensome
- Increase public trust in the taxation system through fairer brackets
Impact on Individuals
Let’s look at a quick example:
👤 If you earn LKR 180,000/month:
- Under the old system: Taxable on LKR 80,000 → approx. LKR 6,000–8,000/month tax
- Under the new system: Taxable on LKR 30,000 → approx. LKR 1,800–2,000/month tax
Savings: LKR 4,000–6,000 per month or LKR 48,000–72,000 per year!
What Should You Do?
Update your payroll or HR team to reflect the new tax rates.
Adjust your monthly budgeting or salary expectations if you’re in a new bracket.
Track your total annual income to ensure you fall within the right thresholds.
Consult a tax professional for personalized planning or if you earn variable income.
