Sri Lanka's withholding tax percentage remains one of the lowest in the world.

According to the latest data analysis by Verité Research, the withholding tax percentage levied by Sri Lanka on interest income is still at a very low level internationally. Although the government took steps to double this tax rate from 5 percent to 10 percent in April 2025, Sri Lanka is still identified as a country maintaining a minimum tax level when compared to other countries in the world that levy interest income tax.

The institution points out that this tax revision is not a significant step in the global context, and emphasizes that there is significant room to further increase this rate to enhance Sri Lanka's tax revenue.

This study, conducted using KPMG Global Withholding Tax data reports from 2024, indicates that the average tax percentage levied on interest income in the South Asian region and middle-income countries is approximately 16 percent. Regional neighbors India and Bangladesh implement a higher tax rate of 20 percent, while Pakistan levies a 15 percent tax. According to these data, only Maldives and Sri Lanka remain at the minimum limit of 10 percent, and it is noteworthy that in a global investigation involving 98 countries, only 6 countries have a lower tax percentage than Sri Lanka. The reports also confirm that some developed countries levy more than 30 percent under this tax category.

Although Sri Lanka's tax collection process has achieved some progress recently, the government's total revenue relative to GDP is still at a lagging level compared to other South Asian countries. Under the current 10 percent tax rate, an income of LKR 175 billion has been generated in 2025, and the projected income for 2026 is estimated at LKR 185 billion. However, as estimated by Verité Research, if steps are taken to increase this tax percentage to 15 percent, government revenue could increase by approximately 50 percent. The data reports further indicate that such an amendment would provide an opportunity to add an additional LKR 93 billion to the government treasury, increasing the total interest income tax revenue to LKR 278 billion.