Deputy Minister of Finance and Planning Dr. Anil Jayantha Fernando has said the 50 percent surcharge on customs duties for private vehicle imports is a temporary measure to control foreign exchange outflows, not a way to raise revenue.

In a statement issued by the Ministry of Finance, Fernando addressed eight tax measures and rejected claims that they had placed an additional burden on the public. They include higher duties on alcohol and cigarettes, higher taxes on vehicle imports, withholding tax on bank interest, and taxes on service exports and digital platforms.

He said the surcharge was introduced because of pressure on the economy caused by the conflict in the Middle East. Its purpose, he said, was to protect foreign exchange reserves and prevent disruption to essential imports. He also defended changes to customs duties on electric vehicles, saying they were meant to correct shortcomings in the system and minimise revenue losses.

On bank interest, Fernando said the withholding tax rate rose from 5 percent to 10 percent. Individuals who are not liable to income tax can avoid the deduction by submitting a declaration or affidavit confirming their status. Taxpayers who do pay income tax can credit the 10 percent deduction against their final annual liability.

He said the 6 percent increase in excise duties on selected products, including alcohol and cigarettes, in January 2025 was an adjustment under an existing inflation-linked formula. The same mechanism produced a 14 percent adjustment in 2024 under the previous administration, he said. The Government later decided against a further adjustment in 2026, taking into account the impact of Cyclone Ditwah.

Fernando also defended raising the tax rate on profits of alcohol and tobacco companies from 40 percent to 45 percent. He said these industries have a greater capacity to generate profits and should contribute more without placing an unnecessary burden on the wider public.

Background

On service exports, Fernando said some exporters had previously enjoyed exemptions that treated business sectors unequally. They are now within the income tax framework, with companies taxed at 15 percent instead of the 30 percent proposed by the previous Government. For individuals earning income from service exports, the maximum rate is capped at 15 percent.

He said VAT on services supplied through digital platforms is intended to treat conventional businesses and app-based businesses equally. He named transport and food delivery platforms as examples.

Responding to claims that VAT on financial services had risen to 20.5 percent, Fernando said two existing taxes had been combined. Financial services were previously subject to 18 percent VAT and a 2.5 percent Social Security Contribution Levy, collected separately. The combined 20.5 percent is now collected through a single mechanism to simplify administration.

Withholding tax is deducted at source by the institution paying the income, such as a bank paying interest to a depositor.

What it means

For savers, the main practical point in the statement is the declaration route. Individuals who are not liable for income tax can avoid the 10 percent deduction on bank interest by giving their bank the required declaration or affidavit. Those who pay income tax can offset the deduction in their annual return.

For anyone planning to import a private vehicle, the statement describes the 50 percent customs surcharge as temporary, but it gives no end date. Fernando said changes in individual tax rates should not be viewed in isolation when judging the overall tax burden, and that improved administration and collection had produced more tax revenue in 2025 than first expected. He added that supplies of fuel, fertiliser and medicines had been maintained despite economic pressures from the Middle East conflict.