Budget 2027: Monthly Tax-Free Income Threshold Set to Rise to Rs. 162,500 Under New Proposals

Sri Lanka's government has put forward a proposal to raise the monthly personal income tax-free threshold from the current Rs. 150,000 to Rs. 162,500 as part of the 2027 Budget, offering potential relief to salaried workers across the country under the Pay As You Earn (PAYE) tax framework.

What the Proposed Change Means for Workers

Under the current system, individuals earning up to Rs. 150,000 per month are exempt from personal income tax. If the proposed revision is approved, that exemption threshold will increase to Rs. 162,500 — meaning a greater portion of monthly earnings will remain untaxed for eligible employees.

The move is expected to ease the tax burden on middle-income earners who have faced considerable financial pressure in recent years amid Sri Lanka's prolonged economic challenges, rising cost of living, and currency depreciation.

Broader Income Tax Cuts on the Table

Beyond the threshold adjustment, the Budget 2027 proposals also include further reductions to personal income tax rates. While full details of the revised tax band structure are yet to be formally presented to Parliament, the government has signalled its intention to make the overall income tax regime more favourable to individual taxpayers.

These proposals form part of a wider fiscal strategy aimed at stimulating domestic consumption and improving the disposable income of working Sri Lankans, while the country continues its recovery path under its International Monetary Fund programme.

Context and Significance

Sri Lanka has undergone significant tax reforms in recent years, including the expansion of the PAYE tax net and increases to Value Added Tax. Critics had argued that those measures disproportionately affected middle-income groups. The latest proposals appear to signal a shift toward offering some concessions to that segment of the population.

• Current monthly PAYE tax-free threshold: Rs. 150,000
• Proposed new threshold: Rs. 162,500
• Additional personal income tax reductions also proposed

The proposals will be subject to Parliamentary debate and approval before they take effect. Sri Lankans are advised to follow the formal Budget presentation closely for the complete picture of how the revised tax structure will apply to different income brackets.

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