KPMG has highlighted that the newly proposed imputed rental income tax is merely the first step towards a comprehensive overhaul of property-related taxation in Sri Lanka. The tax reforms are designed to enhance revenue collection, with the property tax alone expected to contribute 1.2% to the Gross Domestic Product (GDP).
The imputed rental income tax, effective from April 1, 2025, will impose a tax on individuals based on the notional rental income they would earn if their owner-occupied or vacant residential properties were rented out. This measure aims to broaden the tax base by targeting income that currently escapes taxation.
As part of these reforms, the International Monetary Fund (IMF) will spearhead the creation of a comprehensive database and rent register, known as the Sales Price and Rent Register (SPRR). This database will play a critical role not only in the implementation of the imputed rental income tax but also in reforming other property-related taxes. KPMG made these statements at a webinar on the IMF linked tax reforms on June 24. The SPRR will include detailed information on property sales prices and rental values, making it a pivotal tool for tax assessments. KPMG noted that the data from the SPRR would form the basis for other taxes, including property tax, income tax, capital gains tax, and stamp duty. Given that current property valuations are considerably low, the implementation of the SPRR is expected to lead to significant increases in these taxes.
“This new register will not only be used for the imputed rental income tax but also in raising other assessments,” KPMG Principal Suresh Perera stated. The comprehensive nature of the SPRR means that different figures for various property-related taxes will no longer be permissible.
This alignment aims to create a more transparent and efficient tax system, reducing discrepancies and potential areas for tax evasion. One of the significant changes accompanying the implementation of the SPRR is the proposed amendment to the Notaries Ordinance. This amendment will compel notaries to update the digital register with relevant data regarding land and property transactions. The integration of notaries into this digital system ensures that all property-related information remains current and accurate, facilitating fair and consistent tax assessments. The SPRR will be accessible to various government departments, including the Inland Revenue Department, the Valuation Department, and the Land Registry. Additionally, this information will be universally accessible to other relevant actors, promoting transparency and enabling informed decision-making across different sectors.
By mandating a unified data source for property valuations, the government aims to eliminate inconsistencies between different taxes, such as stamp duty and capital gains tax. “You can’t have different figures for stamp duty and capital gains,” KPMG Principal Tax and Regulatory Rifka Ziyard emphasized, underlining the necessity for a cohesive approach to property taxation. Overall, these reforms mark a significant shift in Sri Lanka’s tax landscape. The introduction of the imputed rental income tax is just the beginning, with the SPRR paving the way for a more equitable and efficient taxation system that is expected to bolster government revenues and improve fiscal stability.
TP
