Tax relief on employment income kicks off

The proposed tax relief on the income received from employment is in effect from January 01, 2020, as the Inland Revenue Department kicked into action with the new guidelines and tables for the calculation of the Pay-As-You-Earn (PAYE) tax. 

The government of President Gotabaya Rajapaksa announced a slew of tax concessions on November 27 last year, in a bid to provide instant stimulus to consumers, businesses and to the overall economy.

One such measure was the increase in the withholding tax or PAYE-free threshold from an all-inclusive monthly salary of Rs.100,000 to Rs.250,000, effective from January 01, 2020. 
However, the new guidelines have been issued for three months, from January 01, 2020 to March 31, 2020. 

Hence, the relief could be temporary and the authorities could revisit the concessions after three months.

A parliamentary election is scheduled in April and a budget is likely in June or August.

At the same time, the highest tax rate on employment income was also slashed to 18 percent, from 24 percent. 

The relief on employment income could substantially improve the disposable income of a large section of the middle and upper-income earning segments of the society. 

The tax relief on the employment income was given on the premise that the resultant higher disposable income could trigger incremental demand for goods and services in the economy, which will in turn stoke more investments into production of such goods and services.