New Property Tax 2027: Did NPP flip-flop for IMF?

In February 2024, during the Ranil Wickremesinghe administration, an IMF technical assistance team visited Sri Lanka at the request of the SL government, to help it to implement the commitments under the Extended Fund Facility, “in relation to property and wealth taxation”.

- BY SANJA DE SILVA JAYATILLEKA

They were received by Mahinda Siriwardene, Secretary to the Treasury.

The mission led by Sebastian Beer of the Fiscal Affairs Department (FAD) of the IMF and two external experts, Riel Granzen and William McCluskey issued a report by May 2024, detailing their recommendations. (SRI LANKA Property Taxation at the National and Sub-national Level May 2024).

Their first recommendation was to introduce Imputed Rental Income Tax (IRIT) for owner occupied and vacant residential properties, which is to tax homeowners on a fictitious rental income which they never receive: a tax payable without any cash flow to the taxpayer. The IMF defines what Imputed Rental Income means in their report: “Imputed rental income is the deemed income that homeowners could earn if they rented out their homes”.

The Wickremesinghe administration made preparations to introduce it, with State Minister of Finance Ranjith Siyambalapitiya announcing by June 2024 that individuals with more than one house not rented out, would be subject to that tax by the second quarter of 2025.

By October 2024, the new government under President Anura Kumara Dissanayake rejected this proposal. In an interview given to Shenel Fernando of The Morning, Senior Consultant to the President on Economic Affairs and Finance at the time, Prof. Anil Jayantha Fernando said that the AKD Government was “fundamentally opposed to the proposal by the previous Government to introduce an imputed rental income tax as it was essentially a tax on a nonexistent income.”

He also said “the IMF did not intend to dictate to a country to implement specific taxes, adding that the only requirement by the IMF was for each country to come up with viable revenue generation schemes to meet the targets set by the fund. All it does is to give us a target...It is upon the Government to propose methods to derive income in a manner that the general public will not find overbearing”.

8 Months Later...