🏠 Proposal to Restore Housing Loan Interest Relief for Budget 2027

Calls are growing for Sri Lanka to reinstate personal income tax relief on housing loan interest to ease severe affordability pressures on middle-income earners and support national growth. • Current Housing & Tax Pressures • The Central Bank’s Housing Construction Costs Index rose to 85.5 points in Q2 2026, up over 20% YoY, forcing buyers to take larger loans. • Top Personal Income Tax (APIT) rate of 36% applies to monthly incomes above Rs. 358,000, heavily impacting middle-income families servicing monthly loan interest of Rs. 180,000–200,000. • Current tax policy assesses gross earnings without deducting housing interest, eroding real disposable income. • Economic & Sector Impacts • Broad economic benefits predicted for key sectors: construction, building materials (cement, steel), banking & financial services, and professional services (architecture, legal, engineering). • Stimulates private sector activity to support target growth above 7% without requiring direct government capital spending. • Serves as a key talent retention policy to combat brain drain among skilled professionals in ICT/BPM, medical, and engineering fields. • Proposed Framework • Reintroduce targeted interest tax deductions previously available under past Inland Revenue Acts (most recently 2020–2022). • Cap relief strictly for primary personal residences funded via licensed financial institutions to prevent speculative investment. • Option to offer tax credits to banks passing lower interest rates directly to borrowers.