(Commonwealth) _ Wasantha Athukorala, a professor in the Department of Economics and Statistics at the University of Peradeniya, has raised significant concerns regarding the Sri Lankan government’s plans to introduce an imputed rental income tax. This proposed tax is seen as an alternative to the property tax originally recommended by the International Monetary Fund (IMF) to be implemented by April 2025. Prof. Athukorala criticizes the government’s lack of preparation for the property tax, asserting that the imputed rental income tax may instead be used to circumvent the complexities and reveal the true extent of property ownership, potentially exposing ill-gotten gains.
The imputed rental income tax will apply to owner-occupied and vacant residential properties, marking a shift in the government’s approach to property taxation. The IMF’s Country Report No. 24/161 outlines the necessity of this tax as part of Sri Lanka’s broader efforts to mobilize revenue. The property tax initiative faced delays due to constitutional constraints on revenue sharing between central and local authorities and the absence of reliable property value data, prompting the government to consider the imputed rental income tax as a stopgap measure.
To ensure the imputed rental income tax is effective by the 2025-2026 fiscal year, Sri Lanka plans to undertake several preparatory measures. By December 2024, the government aims to establish a comprehensive database containing estimated current market values for properties. This will involve digitizing existing valuation records held by the government valuation department, starting with municipal councils, with the goal of completing this process by the end of 2025.
Additionally, the government will collect detailed information from a representative sample of 5,000 properties by August 2024. This data collection will include key variables such as annual values, the latest assessment dates, and property types within municipal councils. This effort is intended to help determine the capital values of these properties, which will be crucial for assessing imputed rental income.
Another critical step is the introduction of a provisional nationwide digital Sales Price and Rents Register (SPRR) by August 2024. This register will be fully established and operational by the end of March 2025 and will serve as a vital tool for assessing property values. The SPRR will be accessible to the Inland Revenue Department (IRD), the valuation department, the land registry, and the general public. The creation of the SPRR is a new structural benchmark that will facilitate the implementation of various taxes, including imputed rental income taxation, capital gains taxation, stamp duties, and local recurrent property taxes.
Improving data sharing among relevant government entities is another significant aspect of the plan. A gazette notification issued on March 21, 2024, under the Inland Revenue Act (IRA), mandates the Registrar General’s Department to share all real estate sales information with the IRD. Moreover, the Notaries Act will be amended by April 2025 to ensure that comprehensive information on each notarized real property contract is automatically fed into the digital SPRR. This information will include the valuation roll, cadastral number, and a unique tax ID for each property, enhancing the accuracy and comprehensiveness of property data available to the government.
Prof. Athukorala’s concerns highlight the broader implications of these tax reforms. He suggests that the introduction of an imputed rental income tax could lead to greater transparency in property ownership and potentially uncover illicit wealth. As Sri Lanka moves forward with these initiatives, the government will need to balance the technical and political challenges of implementing effective property taxation to improve revenue mobilization and ensure equitable economic outcomes.
