By Sri Lankan Freelancers Push Back Against New 15% Tax on Foreign Income
Sri Lankan freelancers and digital innovators are raising concerns over a new 15% tax imposed on foreign currency earnings. Many argue that the government is unfairly burdening individuals who have independently built their careers without state support.
Threat to Economic Recovery
Claiming that the Governemnt’s removal of tax exemptions on digital service exports threatens Sri Lanka’s economic recovery, SJB MP Dr. Harsha De Silva said Sri Lanka must reconsider these shortsighted taxes.
Posting a statement on X, he said IT, Business Process Outsourcing companies, software firms, digital agencies, young freelancers on Upwork/Fiverr, content creators and professionals working remotely for global companies will be impacted due to the removal of tax exemptions.
“Sri Lanka DDS exports grew from USD 321M to over USD 1B since 2005. During our economic crisis, remote work has prevented further brain drain by allowing talented Sri Lankans to earn competitive salaries while staying in the country. We can’t afford to lose more youth,” he said.
“We were self-employed and did not ask for anything from the government, but now they are encroaching on us,” says Prabath Widyathilaka, a freelancer on Fiverr from Colombo.
“We should be able to manage, but they should net the big fish first,” adds Sunila Malagammana, who freelances on multiple digital platforms.
The tax, which will take effect from April 1, 2025, applies to individuals earning foreign exchange through services exported outside Sri Lanka. Previously, such earnings were exempted to encourage foreign exchange inflows. According to Sarah Afker, Head of Tax Services at BDO Sri Lanka, the new policy states:
Gains and profits from services provided to foreign clients, if the earnings are brought to Sri Lanka through the banking system, will be taxed at 15%.
Other foreign-sourced income remitted through banks will also be taxed at 15%.
Previously, freelancers benefited from a 12% tax rate, but this exemption was reinstated after being briefly removed between 2018 and 2019. Now, it has once again been reversed, leaving many concerned about its impact.
Concerns of Freelancers
The move has sparked backlash from independent professionals who argue that it will encourage tax evasion rather than compliance.
“This is absurd. They don’t give us any incentives, yet they want us to pay taxes. The only thing that will happen is that freelancers will move their earnings elsewhere to avoid the tax,” says Sudeh Manthilaka, a freelancer affected by the decision.
Some professionals say they will adapt but feel targeted by the policy. “We found our own way to succeed. We know how to handle this,” says Subanga Athulorala, who does digital design for a foreign company.
For many, the issue is not the taxation itself but the lack of support from the government. “If they offered incentives for freelancers and entrepreneurs, the tax would be easier to accept. Instead, they impose taxes without providing any benefits,” argues Wathsala Induruwa, a new freelancer.
Economic Implications and IMF Involvement
The 15% tax comes as part of Sri Lanka’s broader economic reforms, influenced by the International Monetary Fund (IMF). Initially, the IMF recommended a 30% tax on service exports, but the government negotiated it down to 15%. Critics argue that Sri Lanka’s repeated financial crises stem from excessive money printing and poor economic policies.
Historically, Sri Lanka has turned to the IMF for financial assistance due to economic instability. Analysts suggest that ad hoc tax policies result from structural flaws in the country’s monetary framework. The recent decision has fuelled debates on whether targeting individual freelancers is the best approach to stabilizing foreign reserves.
As the tax implementation date approaches, Sri Lanka’s digital workforce is left grappling with its consequences. Will the policy encourage compliance, or will it push freelancers to seek alternative ways to manage their earnings? The coming months will reveal the true impact of this new taxation policy
