Proposed Imputed Rental Income Tax could clash with housing policy, KPMG tax expert says

Suresh Perera Pic by Pradeep Dilrukshana

By Nuzla Rizkiya

The proposed Imputed Rental Income Tax next year could encourage a trend among Sri Lankan people to rent homes over homeownership which directly conflicts with the country’s housing policy, according to a KPMG tax expert.

The property tax has been proposed by the International Monetary Fund (IMF) for introduction in April 2025 as a critical method for the government to mobilise its revenue.

However, it remains unclear whether the government will proceed with its implementation according to KPMG Principal – Tax and Regulatory Suresh Perera who warned it could potentially impact investments in the property development sector of the country.

“I believe that the new government is not in favour of this tax. However, we don’t have a concrete conclusion yet on whether it will be introduced. We’ll have to wait and see if it’s included in the budget,” Perera said addressing a tax seminar organised by the Chamber of Construction Industries (CCI) last week.

“But if this tax is introduced, it will create a different trend in the country. People may prefer renting a house rather than owning one, which goes against Sri Lanka’s housing policy that says every person should own a house” he added.

He went on to describe the Imputed Rental Income Tax as a tax that would apply to homeowners who occupy or leave their properties vacant. The government would calculate an estimated rental income that the property could earn if rented out and tax would be levied on this imaginary income even if the homeowner does not actually receive any rent.

Based on these grounds, Perera said that the tax is unlikely to generate significant revenue for the government but property developers will likely take a hit as there are no targeted tax incentives for the sector.

“This tax was introduced in countries like Denmark and the Netherlands to create equity between renters and homeowners. A similar concept is being introduced in Sri Lanka, but according to my understanding, not much revenue will be collected with the exemptions and low threshold. It is also unlikely that property developers will receive any concession” Perera added.