Deputy Minister of Industries and Entrepreneurship Chathuranga Abeysinghe defended the government’s tax policy, citing restrictions imposed by IMF agreements, which prevent sector-specific tax reductions.

The Minister was responding to the recent criticisms on taxation challenges and the need for better support mechanisms for freelancers in Sri Lanka’s IT sector.

In a Facebook post, Abeysinghe noted that while sectors like IT and tourism could benefit from tax exemptions, the government is bound by International Monetary Fund (IMF) agreements, limiting sector-specific tax reductions.

He also emphasized the need for Sri Lanka to comply with global tax regulations, including a 15% minimum tax on IT services as per international double taxation treaties. The previous government had agreed to a 30% tax rate, he added.

Abeysinghe acknowledged that Sri Lanka lacks essential infrastructure and support for IT professionals compared to other countries. He pointed out that freelancers face significant taxation changes, as their foreign income was previously exempt but is now subject to a 15% tax under personal income tax regulations.

However, he clarified that individuals earning less than LKR 1.8 million (approximately USD 5,000) annually would not be taxed, and the maximum tax rate for freelance foreign income would be capped at 15%, even for those earning higher amounts.

Addressing concerns over tax compliance, Abeysinghe stated that many freelancers do not seem have an income tax file, which could affect their access to financial benefits such as loans, credit insurance, and business recognition.

Citing estimates, Abyesinghe noted that approximately 200,000 freelancers operate in Sri Lanka, and if each brings in at least USD 5,000 through formal banking channels, the country could gain an annual economic boost of USD 1 billion.

However, he pointed out that many freelancers earn below this threshold or use informal channels to receive payments.

The deputy minister also encouraged industry stakeholders to collaborate with the government to ensure a well-regulated digital economy.

“This is an ongoing discussion, and there is time before any legal framework is finalized. Taxes collected are meant for national development, not politicians. The government has allocated LKR 20 billion this year for the digital economy, but it remains uncertain whether the IT sector will receive sufficient support,” he said.

Abeysinghe urged freelancers and industry representatives to engage with the government to address challenges and ensure a structured approach to taxation and industry growth. (Newswire)

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Opposition Leader MP Sajith Premadasa says a 15% Services Export Tax will cripple Sri Lanka’s digital economy and drive talent away.

In a statement on ‘X’, MP Premadasa said IT freelancers and service exporters bring in much-needed forex and that taxing them discourages growth, investment and innovation.

He pointed out that at a time when Sri Lanka needs to boost exports, this move will push talent overseas, hurting the nation’s economy long-term.

MP Premadasa suggested that instead of taxing dollar earners, the government should incentivize and support them to boost long-term revenue, investments, and talent and industry development. 

The Opposition Leader’s remarks come in response to Cabinet Spokesman Minister Nalinda Jayatissa’s statement to the media yesterday that the government has no choice but to implement the Services Export Tax at present. 

Addressing the post-Cabinet media briefing yesterday, Minister Jayatissa pointed out that previously a higher tax was proposed in this regard and that if the Services Export Tax is not implemented, then the people will be forced to face an even more serious tax.

The government’s 2025 budget outlines a 15 per cent Services Export Tax to be implemented from 01 April 2025 reportedly for individuals and corporations in Sri Lanka who provide services to external parties and bring back foreign exchange. (Newswire)

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The government has no choice but to implement the Services Export Tax under the current circumstances, Cabinet Spokesman Minister Nalinda Jayatissa told the media. 

Addressing the post-Cabinet media briefing yesterday, Minister Jayatissa pointed out that previously a higher tax was proposed in this regard.

He further said that if the Services Export Tax is not implemented, then the people will be forced to face an even more serious tax.

“As you know, we have to implement a limited- tax system without further burdening the public in order to increase government revenue. We will look into if the Finance Ministry can give any concession in this regard,” he added. 

The government’s 2025 budget outlines a 15 per cent Services Export Tax reportedly for individuals and corporations in Sri Lanka who provide services to external parties and bring back foreign exchange, to be implemented from 01 April 2025. 

According to the Head of Tax Services at BDO Sri Lanka, Sarah Afker freelancers living in Sri Lanka doing IT work for foreign parties and earning in dollars will also fall under this category. (Newswire)

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The government’s 2025 budget outlines a 15 per cent services export tax for individuals in Sri Lanka who provide services to external parties and bring back foreign exchange, it was reported. 

According to EconomyNext, the Head of Tax Services at BDO Sri Lanka, Sarah Afker said freelancers doing IT work for foreign parties and other professionals who provide services to foreign parties fall under this category.

Afker explained that the services export tax had been listed as a corporate tax in the budget, but Bills to amend the Inland Revenue Act published later indicate that the tax also applied to individuals.

She added that from 01 April 2025, that particular description, as well as any other foreign source income, will be liable for a 15 per cent tax. 

Sarah Afker highlighted the following key factors linked to the tax;

• The tax will apply if the money is brought back to Sri Lanka through the banking system. Up to now, such incomes were exempted, to encourage foreign exchange earnings.
• Under changes proposed to the Inland Revenue Act on individual income tax, income up to 1.8 million rupees is exempt from tax. The next 500,000 is taxed at 6 per cent.
• The earlier 12 per cent tax will be removed and the next 500,000 slab will be taxed at 18 per cent.
• Foreign exchange earnings will be at 15 per cent, above the 6 per cent rate without an upper limit.
• Corporates who export services are taxed only on profits after deducting expenses.
• Individuals could also try to submit an income statement and charge expenses.

The tax specialist added that the services export tax has been included as the International Monetary Fund had proposed a 30 per cent tax, but the government had negotiated it down to 15 per cent. (Newswire)

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