The 2027 Budget raises the annual personal income tax relief threshold from Rs 1.80 million to Rs 1.95 million and rebuilds the rate structure beneath it, inserting a new 12 per cent band where an 18 per cent step previously sat.
In monthly terms the Pay-As-You-Earn threshold rises from Rs 150,000 to Rs 162,500, Lanka Business Online reported. The changes come as amendments to the Inland Revenue Act, No. 24 of 2017, and take effect from 1 April 2027.
The new rate table
| Present band | Present rate | Revised band | Revised rate |
|---|---|---|---|
| Up to Rs 1,000,000 | 6% | Up to Rs 850,000 | 6% |
| Next Rs 500,000 | 18% | Next Rs 600,000 | 12% |
| Next Rs 500,000 | 24% | Next Rs 600,000 | 18% |
| Next Rs 500,000 | 30% | Next Rs 600,000 | 24% |
| Balance | 36% | Next Rs 600,000 | 30% |
| — | — | Balance | 36% |
Two things change at once. The first 6 per cent band narrows, from Rs 1,000,000 to Rs 850,000. But a new 12 per cent slab is inserted immediately above it, and every band after the first widens from Rs 500,000 to Rs 600,000 — so income that previously jumped straight from 6 per cent to 18 per cent now passes through 12 per cent first.
The practical effect is that the top 36 per cent rate is reached much later. EconomyNext reports it will apply at an annual income of Rs 5.2 million, against Rs 4.3 million now — figures that follow exactly from the table above once the relief threshold is added to the cumulative bands.
What it costs the Treasury
The income tax revisions alone are expected to cost Rs 16 billion in forgone revenue. They are part of a wider package the budget documents price at Rs 28.4 billion for 2027, EconomyNext reported separately:
| Measure | Revenue effect |
|---|---|
| Income tax restructuring | −Rs 16 billion |
| Removal of CESS | −Rs 10 billion |
| VAT revisions | −Rs 2.98 billion |
| Port and Airports Development Levy revision | −Rs 350 million |
| Abolition of the Tourism Development Levy | −Rs 40 million |
| Special Commodity Levy revisions | +Rs 950 million |
| Net | −Rs 28.4 billion |
The Special Commodity Levy line is the only one that raises money, because a higher levy on imported sugar more than offsets cuts on imported food staples.
Context
Personal income tax has been among the most contested elements of Sri Lanka’s post-default fiscal programme. The threshold was cut sharply during the 2022–23 consolidation, pulling large numbers of salaried workers into the net for the first time, and successive budgets have since walked part of that back. This desk’s report on the budget as presented noted that further PAYE relief had been trailed but left unquantified at the time of the speech; these are the numbers.
Sourcing note
Two verified newsrooms have filed on the measure. EconomyNext and Lanka Business Online agree on the Rs 1.80 million to Rs 1.95 million change; the full rate table and the April 2027 effective date come from Lanka Business Online, and the Rs 5.2 million top-rate threshold and the revenue costings from EconomyNext. The two sets of figures are arithmetically consistent with each other, which is some corroboration beyond the headline.
Not reported
Neither filing gives a worked example of the change for a specific salary, says how many taxpayers move out of the net entirely, or states whether the Rs 16 billion costing assumes any behavioural response. Nor does either say how the restructuring interacts with the Advance Personal Income Tax regime.