Property tax: a new tax Sri Lanka is going to be introduced in 2027

Expanded budget deficits and continuous borrowing by successive governments pushed the Sri Lankan economy into a recession. These heavy borrowings placed a significant burden on the shoulders of today’s citizens. The previous government was compelled to seek assistance from the IMF to revive the economy, which led to increased tax rates, a broader tax base, and the introduction of new taxes. The present NPP government has introduced some tax revisions.

- DR. TIKIRI NIMAL HERATH

However, it too must increase revenue in order to address the economic crisis and promote sustainable growth. This is why the country is going to introduce property tax in 2027. In other words, the government's tax demand increases in the near future. This note is to provide a brief introduction on property tax that we will have to pay.

Property tax

Governments may impose various types of taxes, though some countries choose not to levy certain kinds. Property tax is no exception. After considering the taxation of income and expenditure, many countries also tax stocks of wealth. Such taxes may be imposed on individual pieces of property—payable by the owner and classified as impersonal in rem taxes (those imposed on objects or activities)—or on the total property holdings or net worth of a person, making them personal taxes.

When we hear the word property, the related concept of wealth also comes to mind. However, there is a distinction between property tax and wealth tax. Property tax generally applies to real property, while wealth tax is levied on total net wealth (all assets minus liabilities). Some countries, such as Spain, Switzerland, Norway, and France, impose both taxes simultaneously. Property tax, however, is widespread globally, though it remains relatively novel in Sri Lanka.

Property tax is generally divided into two categories: real property taxes and personal property taxes, both of which are often referred to as ad valorem taxes (taxes based on the value of property).