Deputy Minister of Finance and Planning Anil Jayantha says new regulations will be introduced to prevent the use of insurance policies as a vehicle to evade withholding tax.
The Deputy Minister said numerous complaints had been received about individuals depositing money into insurance policies in the form of savings, effectively avoiding withholding tax liabilities on interest income.
Amendments to tax collection rules and regulations have been implemented to address the practice, he said, with the proposed changes specifically targeting the use of insurance policies as savings instruments to evade taxes.
Preventing such leakages is essential to broadening the country’s tax base and strengthening the tax collection system, Jayantha said.
Withholding tax on interest income on bank deposits and similar savings instruments was reintroduced in 2023 as part of the IMF-backed fiscal consolidation programme, prompting wealthier savers to look for products outside the standard banking channel. Several life insurance and investment-linked policies offer fixed-return savings components on which the withholding regime had not been uniformly applied.
The move sits alongside the broader tax-base-widening push that has run through this Parliamentary cycle, including the IRD’s first-quarter Rs. 600 billion revenue performance, the Inland Revenue Amendment Bill heading for its second reading on May 19–22, and President Anura Kumara Dissanayake’s IRD meeting on tax broadening and arrears recovery.
Sources: NewsFirst
