Deputy Minister of Industries and Entrepreneurship Chathuranga Abeysinghe defended the government’s tax policy, citing restrictions imposed by IMF agreements, which prevent sector-specific tax reductions.
The Minister was responding to the recent criticisms on taxation challenges and the need for better support mechanisms for freelancers in Sri Lanka’s IT sector.
In a Facebook post, Abeysinghe noted that while sectors like IT and tourism could benefit from tax exemptions, the government is bound by International Monetary Fund (IMF) agreements, limiting sector-specific tax reductions.
He also emphasized the need for Sri Lanka to comply with global tax regulations, including a 15% minimum tax on IT services as per international double taxation treaties. The previous government had agreed to a 30% tax rate, he added.
Abeysinghe acknowledged that Sri Lanka lacks essential infrastructure and support for IT professionals compared to other countries. He pointed out that freelancers face significant taxation changes, as their foreign income was previously exempt but is now subject to a 15% tax under personal income tax regulations.
However, he clarified that individuals earning less than LKR 1.8 million (approximately USD 5,000) annually would not be taxed, and the maximum tax rate for freelance foreign income would be capped at 15%, even for those earning higher amounts.
Addressing concerns over tax compliance, Abeysinghe stated that many freelancers do not seem have an income tax file, which could affect their access to financial benefits such as loans, credit insurance, and business recognition.
Citing estimates, Abyesinghe noted that approximately 200,000 freelancers operate in Sri Lanka, and if each brings in at least USD 5,000 through formal banking channels, the country could gain an annual economic boost of USD 1 billion.
However, he pointed out that many freelancers earn below this threshold or use informal channels to receive payments.
The deputy minister also encouraged industry stakeholders to collaborate with the government to ensure a well-regulated digital economy.
“This is an ongoing discussion, and there is time before any legal framework is finalized. Taxes collected are meant for national development, not politicians. The government has allocated LKR 20 billion this year for the digital economy, but it remains uncertain whether the IT sector will receive sufficient support,” he said.
Abeysinghe urged freelancers and industry representatives to engage with the government to address challenges and ensure a structured approach to taxation and industry growth. (Newswire)
