President Anura Kumara Dissanayake has proposed raising the monthly income tax-free limit for salaried workers from Rs. 150,000 to Rs. 162,500 in the 2027 Budget, presented in Parliament on Thursday.

The annual personal income tax-free allowance would rise from Rs. 1.8 million to Rs. 1.95 million, according to the Budget Speech released by Parliament. Anyone earning up to Rs. 162,500 a month in salaries and allowances would pay no income tax on that pay.

The proposals also change the tax rate structure. A 12 percent rate would be introduced after the first 6 percent bracket, replacing the existing 18 percent rate at that level. The rates would be 6, 12, 18, 24, 30 and 36 percent.

Under the revised brackets, the first Rs. 850,000 of annual taxable income would be taxed at 6 percent, and the next Rs. 600,000 at 12 percent. The following Rs. 600,000 brackets would be taxed at 18, 24 and 30 percent, and the remainder at the top rate of 36 percent.

The monthly income at which the top rate applies would rise from about Rs. 358,000 to Rs. 433,000.

Background

The Budget Speech said the government raised the annual tax-free threshold from Rs. 1.2 million to Rs. 1.8 million in 2025. That change gave taxpayers monthly relief of between Rs. 3,500 and Rs. 20,500.

The new proposals form part of planned amendments to the Inland Revenue Act, No. 24 of 2017. They remain proposals and must go through the legislative process before they take effect.

What it means

According to the Budget Speech, the 2027 changes would give individual taxpayers additional monthly relief of between Rs. 750 and Rs. 15,750, depending on their taxable income.

Combined with the 2025 reforms, total monthly relief would range from Rs. 4,250 to Rs. 36,250, the Budget Speech said. Lower earners near the threshold would gain the least, and those paying at the higher rates would gain the most.

Salaried employees can expect their employers to apply any new PAYE (Pay-As-You-Earn) tables only after the amendments are passed and a start date is announced. Sri Lankans working abroad who earn income in Sri Lanka should check the final rules once the legislation is published.