Sri Lanka nears 16% tax-to-GDP milestone

Finance and Planning Deputy Minister Dr. Anil Jayantha Fernando, Economic Development Deputy Minister Nishantha Jayaweera

• Finance and Planning Deputy Minister Dr. Anil Jayantha Fernando says Govt. aims to raise tax-to-GDP ratio to 20% by strengthening public trust, transparency and fiscal credibility
• Notes improved confidence in State spending boosts tax compliance and curbs evasion, driving revenue growth and reducing corruption
• Asserts Govt. reforms public service via merit-based, phased recruitment to support long-term economic and social transformation

By Charumini de Silva

Finance and Planning Deputy Minister Dr. Anil Jayantha Fernando yesterday said Sri Lanka is on the cusp of reaching a long-sought fiscal milestone, with tax revenue expected to rise to 16% of GDP by the end of this year, reflecting a sharp turnaround driven by record collections and renewed public trust in the management of State finances.

Speaking at a ceremony at the Inland Revenue Department (IRD) headquarters to present appointment letters to 100 newly recruited Assistant Commissioners, the Deputy Minister said the tax-to-GDP ratio has already climbed to 15.4% and is projected to touch 16% by year-end, as all three major revenue-collecting agencies—the IRD, Sri Lanka Customs and the Excise Department have exceeded their annual targets. 

He added that the Government’s longer-term goal of raising the ratio to 20% is achievable, provided public confidence in fiscal governance continues to strengthen. Dr. Fernando attributed the surge in tax revenue primarily to the restoration of trust between the State and taxpayers, noting that tax compliance improves when citizens see their contributions being used responsibly for national development. 

“Tax evasion had been widespread in the past because people lacked confidence that revenues were being managed transparently or translated into tangible economic benefits,” he said.

The current performance, he noted demonstrates that revenue growth is ultimately driven by credibility and accountability rather than technology or regulation alone.

He also underscored the link between higher tax revenue and lower corruption, pointing out that Sri Lanka’s tax-to-GDP ratio had once fallen to around 10%, a period he associated with weak governance and misuse of public funds. 

“The assurance that taxpayer money is not being wasted, but instead directed towards development priorities, has been a decisive factor behind the recent improvement in collections,” he said.

Addressing public sector reform, Dr. Fernando rejected the notion that the public service is inherently a burden, arguing instead that it became one due to decades of unstructured and politically driven recruitment. 

He said the Government is now rebuilding the public service as a dignified institution through methodical, merit-based recruitment based on qualifications and competitive examinations. 

While acknowledging the need for additional public servants, Dr. Fernando stressed that recruitment will be carried out gradually in line with broader public sector transformation and available opportunities, adding that the newly appointed officers would play a key role in driving social and economic transformation.

He also pointed to structural challenges in boosting national income, including the need to expand the labour force and increase female participation. 

“Although women outnumber men in the population, their participation in the labour force remains below 30%, a gap that policymakers see as both a social and economic constraint. To ensure a higher economic growth we need to enhance our women participation in the labour force,” he added.

He also highlighted the need to simplify the tax system, making it more convenient and reasonable while ensuring that all eligible taxpayers are brought into the net. 

Dr. Fernando reiterated that sustainable increases in revenue depend on broadening compliance rather than imposing excessive burdens on a narrow base.

Economic Development Deputy Minister Nishantha Jayaweera said the IRD had surpassed its 2025 revenue target of Rs. 2,195 billion, generating an additional Rs. 50 billion and recording the highest revenue performance in its recent history. 

He asserted that the Government does not intend to raise tax rates, but instead aims to widen the tax base through supportive rules and regulations. 

As part of this approach, he said provisions are being formulated to waive interest for taxpayers who settle outstanding dues in a single payment.

Finance Ministry Additional Secretary Himali Pullaperuma, IRD Commissioner General Rukdevi Fernando and other senior officials were present at the ceremony, which marked a significant step in strengthening the institutional capacity of the country’s tax administration amid Sri Lanka’s broader fiscal consolidation efforts.