President promises PAYE tax reduction by March 2025

Friday, 8 November 2024 00:00 - - {{hitsCtrl.values.hits}}

President Anura Kumara Dissanayake

Announces new Budget will be presented in February and will include PAYE tax relief measures
Says tax reduction would be more substantial for those with lower salaries, while high-income earners would see a smaller decrease
Stresses while tax collection remains crucial, providing economic relief to targeted groups is a priority
Emphasises that SL must achieve economic targets while ensuring citizens’ livelihoods are protected

President Anura Kumara Dissanayake has assured that Sri Lanka’s workforce will see a reduction in current Pay-As-You-Earn (PAYE) tax rates by March 2025. Speaking at a televised political program on Wednesday night, he outlined significant tax reforms and economic measures that his administration intends to implement in the new Budget, scheduled for February 2025.

The President announced that the Budget would include targeted relief from high PAYE tax rates, particularly benefiting lower-income earners. “We are hopeful to make meaningful adjustments to the PAYE tax,” Dissanayake said, adding that the tax reduction would be more substantial for those with lower salaries, while high-income earners would see a smaller decrease.

Dissanayake also revealed that Sri Lankan officials recently met with International Monetary Fund (IMF) representatives in Washington to discuss these proposed reforms.

He noted that an IMF delegation will visit Sri Lanka on 14 November to continue consultations on the nation’s fiscal direction.

In preparation for the new Government’s fiscal approach, Dissanayake confirmed that a streamlined cabinet with fewer than 25 members would be appointed following the 14 November election. However, given the time constraints, he said the Government will initially present a supplementary budget to support state operations through March 2025, with the full budget expected in February.

The President also outlined plans to remove the Value Added Tax (VAT) on certain essential goods and services. He emphasised that, while tax collection remains crucial, providing economic relief to targeted groups is a priority. “We aim to foster an economy and environment where everyone can live comfortably,” he said.

Dissanayake acknowledged that Sri Lanka is operating within the IMF’s stringent fiscal parameters, which require Government revenue to reach 15% of GDP by 2025, up from this year’s target of 13.8%. Additionally, the IMF has stipulated that the country’s primary account balance must achieve a positive 2.3% by 2025.

The President highlighted the tough choices ahead where the country must either exit the IMF program and risk economic instability or remain in the program while balancing fiscal responsibility with public welfare. He stressed that, given Sri Lanka’s current economic conditions, leaving the IMF program was not feasible. “Our economy cannot withstand such a shock at this point,” he noted.

Dissanayake acknowledged that both the proposed PAYE tax reform and VAT adjustments would impact revenue. “However, we must achieve our economic targets while ensuring citizens’ livelihoods are protected. Economic progress is meaningless if it compromises people’s right to live,” he said.