FINANCIAL CHRONICLE – President Anura Kumara Dissanayake of Sri Lanka, along with key officials from the Department of Inland Revenue, convened to explore strategies for expanding the tax base, enhancing compliance, and recovering overdue tax payments, as reported by the President’s Media Division (PMD).
Last year, Sri Lanka achieved a historic peak in tax revenue, and the government is working to further increase this figure in alignment with targets set by the International Monetary Fund (IMF).
The PMD indicated that the meeting concentrated on initiatives to bolster the capabilities of the Inland Revenue Department, with an emphasis on broadening tax revenue, improving compliance rates, and addressing outstanding tax liabilities. “In-depth discussions were held regarding the necessary institutional restructuring and digital transformation initiatives to meet these goals,” the statement noted.
Additionally, the meeting touched upon the advancement of the national e-invoicing system and the accompanying legal frameworks. President Dissanayake directed officials to ensure the timely completion of this project.
Since the economic crisis in 2022, Sri Lanka has significantly reformed its tax policy, transitioning from a low-tax environment to one characterized by rigorous fiscal consolidation efforts, one of the most comprehensive in the nation’s history. These reforms have been largely influenced by the IMF’s Extended Fund Facility (EFF) program, which aims to restore debt sustainability through a substantial expansion of the tax base and enhanced collection efficiency.
Tax collection has nearly doubled over the past three years, with the government’s Fiscal Strategy Statement for 2026 aiming to elevate total revenue to exceed 15% of GDP— a level not achieved in over 15 years. By the end of 2025, tax revenue is expected to reach about USD 16.8 billion.
To meet these objectives, the government has implemented several stringent measures to integrate a larger number of individuals and businesses into the formal tax system. In 2023, the tax-free threshold was significantly reduced, accompanied by the introduction of progressive tax rates ranging from 6% to 36%. This adjustment resulted in a threefold increase in registered taxpayers within a year.
As of the 2025/2026 fiscal year, the Inland Revenue Department (IRD) has mandated electronic filing for the majority of taxpayers. However, senior citizens were allowed the option to choose between manual and electronic filing until April 2025.
The Inland Revenue (Amendment) Act of 2026 expanded the scope of withholding tax (WHT) to encompass independent service providers, including social media professionals, brand ambassadors, therapists, and event photographers, thereby ensuring that the gig economy is included in the tax framework.
Recent legislative changes have aimed at closing loopholes and introducing new revenue sources. The Value Added Tax (VAT) rate was raised to 18%, and the Simplified VAT (SVAT) system was eliminated as of October 2025 to facilitate a more efficient collection process. (Colombo/April 27/2026)
