LNP – Minister issues clarification over 15% tax on digital service exports

Minister of Labour and Deputy Minister of Economic Development Prof. Anil Jayantha Fernando addressed concerns regarding the taxation of individuals earning foreign revenue through digital services.Â

The Minister emphasized that recent amendments to the Inland Revenue Act have been misinterpreted, leading to misconceptions in society. Â

Prof. Fernando clarified that the taxation system applies to all income earned within Sri Lanka, whether the source is domestic or international. However, he highlighted that relief measures have been introduced for those earning from digital services compared to other sectors. Â

“There has been debate about a 15% tax on service exports, with some believing it is an entirely new tax. In reality, under the Income Tax Act, everyone is subject to income tax. However, individuals earning less than Rs. 150,000 per month will be fully exempt from income tax starting in April, regardless of their industry,” he explained. Â

For those earning above this threshold, a progressive tax system applies. Prof. Fernando provided an example: Â

– If an individual earns Rs. 200,000 per month from providing digital services for abroad, the first Rs. 150,000 is tax-free. Â
– The remaining Rs. 50,000 falls within the Rs. 85,000 tax bracket, taxed at 6%, amounting to just Rs. 3,000. Â

He further pointed out that while ordinary taxpayers face income tax rates of up to 36%, those in the digital services sector are capped at a maximum of 15%. This, he argued, provides a relative advantage rather than imposing an additional burden. Â

Prof. Fernando urged the public to avoid misinformation, stating that the new tax structure is not an unfair imposition but rather a step toward a more balanced taxation system.