President Anura Kumara Dissanayake is expected to outline possible tax relief measures when he presents the 2027 Budget to Parliament tomorrow (November 12), with PAYE income tax relief, Value Added Tax (VAT) reductions and changes to taxes on books among the key proposals to watch.
The President and senior government ministers have made several statements in recent months indicating that certain taxes could be reduced or revised, raising expectations among salaried employees, businesses and the wider public.
1. PAYE tax relief: Will the tax-free threshold increase to Rs. 200,000?
One of the most anticipated measures is further relief under the Pay-As-You-Earn (PAYE) income tax system.
The government previously increased the monthly tax-free income threshold from Rs. 100,000 to Rs. 150,000 in April 2025.
In September, Deputy Minister of Economic Development Nishantha Jayaweera indicated that the government remained committed to increasing the monthly tax-free threshold to Rs. 200,000.
Meanwhile, Minister Bimal Ratnayake acknowledged in a television interview in September that PAYE taxes remained high for professionals despite previous reductions.
He said the Finance Ministry supported further PAYE relief and indicated that changes could be announced in the upcoming Budget, subject to the country’s fiscal position and commitments under the International Monetary Fund (IMF) programme.
However, the government has not officially confirmed whether the Rs. 200,000 threshold will be introduced in Budget 2027.
2. VAT reductions: Will the 18% rate change?
President Dissanayake has previously outlined plans to gradually reduce VAT over the next two to three years.
The government has acknowledged concerns over the burden of VAT on consumers and businesses, while stressing the importance of maintaining revenue collection.
Minister Bimal Ratnayake also indicated that any VAT reductions would depend on the country’s fiscal position and IMF commitments.
While the government has signalled its intention to reduce VAT, it remains unclear whether the current standard rate of 18% will be revised in the 2027 Budget.
3. VAT on books: Prime Minister confirms proposed changes
Another significant tax change under consideration concerns VAT imposed on books.
Prime Minister Dr. Harini Amarasuriya announced on September 25 that the government was focusing on revising VAT on books through the upcoming Budget.
Speaking at the opening ceremony of the 27th Colombo International Book Fair at the BMICH in Colombo, the Prime Minister said President Dissanayake had specifically instructed her to inform the public that the government would be able to introduce a significant change to VAT imposed on books through the Budget.
She stressed that the government recognised the importance of books and understood the need to ease the financial burden associated with purchasing reading materials.
The announcement has raised expectations of tax relief for books, although the government has not disclosed the proposed changes or confirmed whether VAT will be reduced or removed.
Other tax changes and fiscal commitments
Apart from these three areas, the President has previously indicated that the government intends to reduce certain existing taxes while maintaining its revenue targets.
The government has also announced the deferral of the proposed property tax on residential housing.
However, any tax reductions will need to be balanced against Sri Lanka’s fiscal commitments under the IMF-supported economic programme, as well as public expenditure requirements.
With the Budget scheduled to be presented at 1.30 p.m. tomorrow, attention will focus on whether the government delivers further PAYE relief, announces a timetable for reducing VAT and introduces the promised changes to taxes on books.
The exact measures and implementation dates will only be confirmed during the President’s Budget presentation. (Newswire)