• Interest income taxed at 10%, up from 5%
• 15% levy on overseas earnings

Effective today (1 April), Sri Lanka has implemented a 10% AIT (Advance Income Tax) on interest income and a 15% tax on foreign earnings, marking a key step in the country’s economic stabilisation efforts under its agreement with the International Monetary Fund (IMF).

The updated tax measures include a doubling of the AIT on interest income from 5% to 10%, and a new 15% Foreign Exchange (forex) earnings tax on Sri Lankans receiving salaries from overseas employers. These policies were first outlined by President Anura Kumara Dissanayake in Parliament on 18 March this year, and are part of the fiscal reform framework designed to shore up government revenue and strengthen public finances.

The new 15% forex earnings tax will target residents earning in foreign currency, a move aimed at ensuring tax parity between domestic and international income streams. However, Sri Lankan residents who are already paying tax rates above 15% in foreign jurisdictions will be exempt from this levy to avoid double taxation.

Pensioners and low-income earners who may be disproportionately affected by the higher AIT can apply for exemptions through a new window introduced by the Inland Revenue Department (IRD). The department has issued guidelines on eligibility and application procedures for those seeking relief.

Labour Minister and Deputy Economic Development Minister Prof. Anil Jayantha Fernando, who announced the new tax structure earlier this month, described the measures as necessary but calibrated to improve fiscal discipline while safeguarding vulnerable groups.

The new tax rates are expected to generate additional state revenue while aligning with international best practices on taxation of capital and foreign-sourced income.