Sri Lanka’s Pay As You Earn (PAYE) income tax will be reviewed as part of a medium-term revenue strategy currently being prepared with the International Monetary Fund’s assistance, IMF Mission Chief for Sri Lanka Evan Papageorgiou has said.
Speaking to NewsFirst’s Zulfick Farzan on Thursday, the mission chief said the configuration of income taxes, including PAYE, would be a key element of the strategy the authorities are completing with IMF support. He indicated that work was under way but stopped short of providing a timeframe for how long current PAYE levels would be maintained under the Extended Fund Facility programme.
The PAYE bands, which apply to salaried workers in the formal sector, have been one of the most politically contentious elements of Sri Lanka’s post-default tax architecture. The current schedule was sharply tightened in 2023 as part of the EFF programme’s revenue-mobilisation effort, drawing repeated calls from professional bodies, opposition parliamentarians and senior officials for relief on middle-income earners.
Papageorgiou’s remarks reaffirm that any change to the schedule will be embedded in a broader medium-term revenue plan rather than introduced as a standalone concession. The Fund and the Sri Lankan authorities have been working on the framework since the EFF programme’s last review, which the IMF Executive Board approved on May 27 with the combined fifth and sixth disbursement of US$ 695 million. At a post-board briefing in May, Papageorgiou had described the country’s debt risks as still elevated but on a declining trajectory and called revenue mobilisation a continuing priority for the programme.
The mission chief has more recently emphasised that the Central Bank should be allowed exchange rate flexibility as a “first line of defence” against external shocks, while fuel and electricity prices should remain cost-reflective even amid the Middle East energy shock.
No specific implementation timeline was given for the PAYE review. The Fund-backed medium-term revenue strategy is the framework expected to guide all major tax-policy decisions through the rest of the EFF programme and into any successor arrangement.
