SL to amend Inland Revenue Act to nudge pension funds to agree with DDO

Cabinet green light has been granted to draft a bill amending the Inland Revenue Act to revise income tax rates levied on the interest income earned from Treasury bonds by superannuation funds, if the fund holders disagree with the domestic debt optimisation (DDO) process. 

“This week, President Ranil Wickremesinghe, in his capacity as the Minister of Finance, Economic Stabilisation, and National Policies, sought Cabinet approval to publish the bill in the Government Gazette and present it in parliament.

Under the DDO, the maturity of Treasury bonds held by superannuation funds, including Employees’ Provident Fund and Employees’ Trust Fund, has been extended from 2027 to 2038 with a step-down coupon structure of 12 percent until 2025 and 9 percent until maturity. Out of the Rs.8.7 trillion outstanding Treasury bonds, 36.5 percent is held by the superannuation funds.

If these fund holders reject the DDO, the government proposes to increase the tax rate on the interest income of these funds from the current 14 percent concessionary rate to 30 percent standard rate.
The Department of Government Information said the bill prepared in this regard by the Legal Draftsman has received Attorney General’s clearance.

The Cabinet of Ministers on June 28 approved a proposal to introduce amendments to the Inland Revenue Act No. 24 of 2017 for revising the income tax rate levied on the income earned by investing in Treasury bonds by superannuation funds to facilitate the local debt optimisation process.