Statement of Estimated Tax in Sri Lanka: What Changed

If you have read older guides about paying tax as a freelancer in Sri Lanka, you have probably run into the term "Statement of Estimated Tax," or SET. The advice was always the same: forecast your year, file the statement by August 15, and pay in quarters. That advice was correct for years. It just stopped being the full picture in April 2026.

So this guide does two things. It explains what the Statement of Estimated Tax actually was and what went into it, because that still matters if you are settling an older year. Then it covers what replaced it from the Year of Assessment 2026/2027, and what you, as a freelancer, actually have to do now.

What is a Statement of Estimated Tax (SET)?

A Statement of Estimated Tax was a short declaration you filed with the Inland Revenue Department at the start of the tax year. In it, you estimated how much income you expected to earn and how much tax you expected to owe, before the year had actually played out.

Why estimate at all? Because freelancers and other self-employed people don't have an employer deducting tax from a monthly salary. The Inland Revenue Act calls you an "instalment payer," and instead of waiting until the year ends, you pay your tax in four instalments as you go. The SET was the figure those instalments were based on.

Who had to file a SET, and what did it contain?

Under Section 91 of the Inland Revenue Act, every instalment payer had to file one. You were an instalment payer if you earned assessable income from a business, an investment, other income, or employment where your employer didn't withhold tax (foreign employment, for example). That captured most freelancers, consultants, landlords, and remote workers.

The statement itself, under Section 91(2), had to set out three things:

• Your estimated assessable income for the year, from each source (employment, business, investment)
• Your estimated taxable income, which is assessable income after your reliefs
• The estimated tax payable on that taxable income

You filed it by the date of the first instalment, August 15, and it stayed in force for the whole year unless you filed a revised one. If your income climbed or fell, you updated the estimate and your remaining instalments adjusted. We cover the mechanics of that in the quarterly tax payments guide.

Has the SET changed for 2026/2027?

Yes, and this is the part that catches people out. The Inland Revenue (Amendment) Act No. 11 of 2026 abolished the formal Section 91 Statement of Estimated Tax for years of assessment that start on or after April 1, 2026. The sections that governed filing and revising the statement now only apply to years that began before that date.

In plain terms: for YoA 2026/2027, there is no Section 91 SET form to file at the start of the year. The system was simplified.

How are my quarterly instalments worked out now?

The quarterly system under Section 90 is still here. Four instalments, same dates: August 15, November 15, February 15, and May 15. What changed is where the target figure comes from.

Each instalment is worked out with this formula:

(A − C) ÷ B

• A is your tax target for the year.
• C is the tax already paid or withheld during the year (earlier instalments, plus any tax taken at source).
• B is the number of instalments left, including the one you're calculating.

The big change is in A. For 2026/2027, A is no longer an estimate you file. By default, it is simply the tax you paid for the preceding year. If you settled Rs. 480,000 of tax for 2025/2026, the IRD uses that as the target for your 2026/2027 instalments. You don't have to forecast anything. Last year's bill becomes this year's baseline.

For a freelancer with a steady book of clients, that is genuinely less work. But freelance income is rarely steady, which is where the exceptions come in.

When do I still need to estimate my own tax?

The formal SET is gone, but estimating has not disappeared entirely. An estimate of your current-year tax still replaces "last year's tax" as your target A in two situations:

1. You expect this year to be lower. If your income is heading down compared to last year, you can base your instalments on a current estimate instead of overpaying against a bigger past year.
2. You had no taxable income last year. If there is no preceding-year tax to use, you have to estimate. This is the classic case of the first-year freelancer, who has no prior bill to fall back on.

In both cases, the estimate is provided on the basis and through the procedure specified by the Commissioner-General, not the old Section 91 form. The principle is the same as the SET, the paperwork around it is what changed.

How do I prepare that estimate? (worked example)

Take Dineth, who started freelancing as a software developer in April 2026. He works for overseas clients, paid in US dollars into his Sri Lankan bank account. Because 2026/2027 is his first earning year, he had no taxable income last year, so he has to estimate.

The method is the same shape the old SET used. Work top down.

Step 1: Estimate annual income from each source. Dineth expects about Rs. 4,800,000 in net business income for the year, after his deductible business expenses.

Step 2: Subtract reliefs to get taxable income.

Step 3: Apply the rates to get estimated tax payable. The progressive slabs would give:

But Dineth's income is foreign service income. Because his service is used outside Sri Lanka, he's paid in foreign currency, and the money is remitted through a bank, his rate is capped at 15% under the First Schedule, Paragraph 1(6). So his tax is the lower of the progressive figure and the cap:

• Progressive: Rs. 600,000
• 15% cap: 15% of Rs. 3,000,000 = Rs. 450,000

His estimated tax payable is Rs. 450,000. The 2025 freelancer changes explain how this concessionary rate replaced the old foreign-income exemption.

Step 4: Subtract tax paid at source, then divide. Dineth has no tax withheld at source, so his C is zero. Four instalments, so:

Rs. 450,000 ÷ 4 = Rs. 112,500 per instalment, due each quarter.

How does tax paid at source fit in?

That "C" in the formula matters more for some people than others. If you only earn foreign freelance income with nothing withheld, C is zero and you just divide your tax by four. But if tax is taken from you during the year, it counts toward your instalments.

Two common sources:

• Advance Income Tax (AIT) withheld by your bank on local interest or dividends
• Advance Personal Income Tax (APIT) deducted by an employer, if you also hold a job

Say Dineth also kept a fixed deposit and the bank withheld Rs. 40,000 of AIT before his first instalment date. That Rs. 40,000 is part of C, so it reduces what he has to pay at that instalment. You never pay the same tax twice. Anything collected at source is credited against your quarterly total. Our guide on final versus creditable withholding tax explains which deductions you can claim back this way.

What if my income changes during the year?

Estimates are guesses, and freelance guesses move. The quarterly formula is built to absorb that. Because each instalment is calculated as (A − C) ÷ B, with B being the quarters that remain, any change to your target gets spread evenly across the instalments you have left rather than landing in one lump.

If your income rises sharply, update your figure and the remaining instalments step up to match. If it falls, the lower-income estimate route lets you bring your target down so you stop overpaying. Either way, the earlier in the year you adjust, the smoother the change, because there are more quarters left to absorb it. The same logic, with full worked numbers, is in our guide on estimating quarterly tax on irregular income.

What happens if I get the estimate wrong?

There's a difference between estimating honestly and paying late.

If an instalment is underpaid, Section 179(2) applies a 10% penalty on the shortfall if it isn't settled within 14 days of the due date, and interest runs at 1.5% per month on the outstanding amount. This penalty is mechanical. It applies based on what you should have paid, regardless of intent.

An honest under-estimate is treated more gently. Section 181(3) says no false-statement penalty applies where you "did not know and could not reasonably be expected to know" your estimate was wrong. A genuine forecast that income later beat is not a false statement.

Preparing your estimate without the spreadsheet

Whether you're settling an older year under the SET rules or estimating fresh for 2026/2027, the arithmetic is the same: total your income, take off the relief, apply the slabs, respect the 15% cap, subtract tax paid at source, and divide. Doing it by hand once is fine. Doing it every time a client pays, and again whenever your outlook shifts, is where mistakes creep in.

The headline to remember is simple. The formal Statement of Estimated Tax is no longer something you file for 2026/2027. But the thinking behind it, knowing what you'll owe and paying it in steady quarters, is exactly what keeps you compliant and penalty-free. The form went away. The discipline didn't.