Current tax rate in Sri Lanka and its effects

 

Income tax is a crucial aspect of a country's tax system, as it helps generate revenue for the government to fund various public services and infrastructure. In Sri Lanka, the income tax system underwent some changes in the 2022–2023 year of assessment as compared to the 2020–2021 year of assessment. The introduction of a tax on gross monthly salary is one of the most significant changes to the income tax system. In 2023, the tax brackets and rates for monthly gross salary are different from the taxable income per annum. The first LKR 100,000 of the gross salary is tax-free, providing relief to those with a lower income. The tax rate then ranges from 6% to 36% for those earning above LKR 308,333 per month. Another change in the income tax system is the tax-free threshold for taxable income per year, which increased from LKR 3,000,000 in 2020/21 to LKR 1,200,000 in 2023. This increase in the tax-free threshold provides relief to those with lower taxable income and reduces the tax burden on them. Additionally, the tax rate for the subsequent brackets has increased by 6% in 2023, with the highest rate being 36%, compared to 18% in 2020 and 2021.

Relief for those with lower income: The increase in the tax-free threshold and the introduction of tax relief for those earning a lower gross monthly salary will provide financial relief to individuals with lower income. Increased revenue for the government: The increase in the tax rate for higher income earners and the introduction of tax on monthly gross salaries will generate more revenue for the government, which can be used to fund various public services and infrastructure. Fair tax system: The changes to the income tax system aim to provide a more fair and comprehensive tax system for individuals by taking into account their income levels and other factors.

 Burden on higher income earners: The increase in the tax rate for higher income earners may result in a higher tax burden for them, reducing their disposable income. Complexity: The introduction of tax on monthly gross salary and the changes in the tax brackets and rates may result in a more complex tax system, requiring individuals to seek professional help or spend more time understanding the system. Inequality: The changes in the income tax system may result in some inequality, as those with lower income may receive more relief than those with higher income, who may bear a higher tax burden.

 In conclusion, the changes in the income tax system in Sri Lanka have both positive and negative effects, and it is important for the government to balance the benefits and drawbacks to ensure a fair and efficient tax system for individuals. The changes in the income tax system in Sri Lanka in the 2022–2023 year of assessment reflect the government's effort to provide relief to those with lower income and generate revenue to fund public services and infrastructure. The introduction of tax on monthly gross salary and the increase in the tax-free threshold provide a more comprehensive and fair tax system for individuals. These changes show that the government is taking the necessary steps to ensure the country's economic stability and growth.