Staying ahead of tax legislation is crucial for professionals and businesses. The proposed Inland Revenue Amendment Bill 2026 introduces several significant shifts in Sri Lanka’s tax framework, ranging from Capital Gains Tax hikes to expanded compliance requirements.
To help you and your clients prepare, we have summarized the key changes and their effective dates in an easy-to-read format below.
1. Tax Rate Changes
The most immediate impacts will be felt in the taxation of investment asset realizations, with steep increases proposed for certain entities.
| Feature / Category | Key Change | Effective Date |
| Capital Gains Tax (Individuals & Partnerships) | Rate increases from 10% to 15%. | Upon Enactment |
| Capital Gains Tax (Trusts, NGOs & Unit Trusts) | Rate increases from 10% to 30%. | Upon Enactment |
| Capital Gains Tax (Companies) | Remains unchanged at 30%. | N/A |
2. Income Computation, Deductions, and Reliefs
The amendment bill rationalizes several deductions, clarifies past anomalies, and tightens rules around corporate financing and residency.
| Feature / Category | Key Change | Effective Date |
| Export-Related Payments | Payments with no Sri Lankan source can be directly deducted if incurred for the export of goods or services from Sri Lanka. | Apr 1, 2018 (Retrospective) |
| Cash Payment Restrictions | For payments ≥ Rs. 500,000, depositing cash directly into the recipient’s bank account is now an allowed method for deductions. | May 8, 2023 (Retrospective) |
| Salary Arrears Tax Credit | A tax credit mechanism is introduced for employment income arrears received in a different year to prevent double taxation. | Jan 1, 2024 (Retrospective) |
| Motor Vehicle Disposals | Explicit exclusion of casual nature capital gains from the disposal of motor vehicles. | Apr 1, 2024 (Retrospective) |
| Life Insurance Receipts | Receipts upon death, maturity, or surrender are excluded from Assessable Income (annuities/pensions remain taxable). | Apr 1, 2025 |
| Qualifying Payments | Unutilized deductions for donations to the Government of Sri Lanka or government funds can now be carried forward. | Apr 1, 2025 |
| Thin Capitalization | For calculating deductible financial costs, “reserves” will now include negative retained earnings, accumulated losses, or deficits. | Apr 1, 2025 |
| Head Office Expenditure | For non-resident Sri Lankan Permanent Establishments, deductible expenses are strictly limited to the actual expenditure or 10% of assessable income, whichever is lower. | Apr 1, 2025 |
| Tax Residency Rules | Golden Paradise Visa holders and individuals on overseas employment contracts of 1+ year (with unassociated employers) will not be considered tax residents. | Apr 1, 2025 |
| Enhanced Capital Allowances | A 100% ECA is granted for new undertakings utilizing depreciable assets with an investment between USD 250,000 and USD 3 million. | Apr 1, 2026 |
3. Withholding Tax (WHT) Expansions
The scope of Withholding Tax is being widened, impacting independent service providers and specific industry sectors.
| Feature / Category | Key Change | Effective Date |
| Independent Service Providers | 29 new service categories (doctors, engineers, artists, beauticians, IT specialists, etc.) will be subject to WHT. | Upon Enactment |
| WHT Certificates | Withholding agents are legally required to issue WHT certificates to withholdees free of charge. | Upon Enactment |
| WHT on Interest Income | Resident individuals with no taxable income can submit a self-declaration to avoid AIT/WHT deductions on bank deposit interest. | Apr 1, 2025 |
| WHT on Gems | A 2.5% WHT applies to the sale price of gems sold at National Gem & Jewellery Authority auctions, requiring the Authority to file monthly returns. | Apr 1, 2026 |
4. Administrative, Compliance, and Enforcement Overhaul
The Inland Revenue Department is tightening its administrative grip to enhance tax collection, tracking, and anti-money laundering efforts.
| Feature / Category | Key Change | Effective Date |
| Mandatory TIN Requirements | TIN is mandatory for opening bank accounts, building plan approvals, registering vehicles/land, registering businesses, transferring shares, and getting credit cards. | Upon Enactment |
| Company Registration | All newly incorporated companies must obtain a TIN within 30 days of incorporation. | Upon Enactment |
| Document Submission Limits | Strict limits imposed for submitting requested evidence: 6 months for domestic documents, 9 months for foreign documents. | Upon Enactment |
| Information Sharing | The IRD can now share confidential information with the Financial Intelligence Unit, the Inspector-General of Police (for AML/CFT purposes), and the SLAASMB. | Upon Enactment |
| Late Payment Amnesty | Write-off of outstanding interest on income tax (up to Y/A 2022/2023), provided the principal tax and penalties are paid in full within 6 months of the Act’s operation. | Upon Enactment |
| Senior Citizen Returns | Senior Citizens are permitted to file their tax returns manually (in writing) or electronically. | Upon Enactment |
| Sunset Clauses | Temporary tax concessions under the Sixth Schedule and concessionary rates under the 2006 Act will officially expire. | Mar 31, 2025 |
| Unit Trust Compliance | Unit trusts that fail to issue income/WHT certificates to holders within 5 months of the Y/A end will be deemed a resident company for tax purposes. | Apr 1, 2025 |
| Return Filing Exemptions | Employees whose income is fully subjected to APIT and who have interest income of Rs. 5,000 or less are exempt from filing returns. | Apr 1, 2025 |
| Protection from Assessment | Returns declaring tax of at least 120% of the previous year’s payable tax (paid in full with an affidavit) will be protected from additional assessments, barring fraud. | Apr 1, 2025 |
| Abolition of SET Return | The requirement to file a Statement of Estimated Tax (SET) is removed. | Apr 1, 2026 |
| Installment Tax Computation | Quarterly installments will be calculated based on the actual tax payable in the immediately preceding year. | Apr 1, 2026 |
*** Disclaimer: These provisions are based on the proposed Inland Revenue Amendment Bill 2026 and are subject to final parliamentary enactment. Members are advised to review the finalized Act once published.
