A disagreement has reportedly emerged between the Sri Lankan Government and the International Monetary Fund (IMF) over a proposal to introduce a tax on second residential properties as part of the 2027 Budget.
According to sources familiar with ongoing budget discussions, the IMF has proposed introducing a Secondary Property Tax on individuals who own second and subsequent homes as a revenue-generating measure under Sri Lanka’s Extended Fund Facility (EFF) programme.
However, the Government has reportedly informed the IMF that such a tax is unnecessary, arguing that alternative revenue sources are sufficient to achieve the country’s fiscal targets for 2027.
The Government has also maintained that implementing the proposed tax would be challenging due to the absence of a comprehensive and up-to-date database on property ownership across the country.
Despite the Government’s position, the IMF is expected to continue advocating for the introduction of the tax, even if it is not included in the 2027 Budget proposals.
Under the initial agreement reached with the IMF in 2023, Sri Lanka had planned to introduce a nationwide property tax by 2025.
However, an IMF technical mission that visited the country in February 2024 identified two major obstacles. The first was that property taxation falls under the jurisdiction of Provincial Councils under the 13th Amendment to the Constitution, preventing the central government from directly imposing such a tax. The second was the lack of updated valuation data for the country’s nearly five million properties.
To address these challenges, the IMF later proposed an alternative Imputed Rental Income Tax in August 2024, which would have taxed the estimated rental value of owner-occupied homes. The measure was initially expected to take effect from April 2025.
However, the current Government, which assumed office following the November 2024 General Election, concluded that the proposal was impractical and decided not to proceed with its implementation.
