Sri Lanka’s Personal Income Taxpayer Base Lags Behind South Asian Peers Despite Recovery

Abstract

The number of people registered for personal income tax (taxpayer base) in Sri Lanka recovered in 2024 to the high levels seen in 2019. However, despite this rebound, Sri Lanka still lags behind its regional peers.

In 2024, income taxpayers in Sri Lanka represented 8.7% of the total working-age population, ranking the country fifth in South Asia. Countries such as Bhutan, Nepal, and India have more registered taxpayers than Sri Lanka, with over 60% of their working-age populations registered for taxes in Bhutan. Only Bangladesh and Pakistan have a lower taxpayer base compared to Sri Lanka.

Sri Lanka’s current position in South Asia is due to Sri Lanka's increase in its taxpayer base from 1.4% in 2022 to 8.7% in 2024. This improvement is mainly because the government reduced the tax-free income threshold from LKR 3 million to LKR 1.2 million annually in January 2023. In 2020, the government increased the personal income tax threshold from LKR 500,000 to LKR 3 million per year, a 500% rise, which caused the taxpayer rate to drop from 8.7% in 2019 to 1.4% in 2022.

In April 2025, the government raised the tax-free income threshold from LKR 1.2 million to LKR 1.8 million annually. This change could further decrease the taxpayer base over time. Notably, Sri Lanka has the most generous tax threshold in South Asia besides the Maldives. While this benefits low-income earners, it also restricts the effective tax base relative to neighbours like India, which implement lower tax-free thresholds.