Tuesday Aug 11, 2026
Tuesday Aug 11, 2026
Tuesday, 11 August 2026 01:55 - - {{hitsCtrl.values.hits}}
 |
| President and Finance Minister Anura Kumara Dissanayake |
Sri Lanka’s tax concessions to Board of Investment (BOI) enterprises and Strategic Development Projects (SDPs) remain substantial, with official data putting identified tax expenditure across corporate income tax, Value Added Tax (VAT), and border levies at over Rs. 276 billion, highlighting the fiscal cost of investment incentives at a time of increased focus on revenue mobilisation.
This is according to a Finance Ministry ‘Tax Expenditure Report - 30 June 1026.’ However, the report covers different tax periods and therefore should not be treated as a single-period revenue loss. Corporate income tax figures relate to the 2024/25 basis year, VAT data cover the first quarter of 2026, while Customs Import Duty (CID), Ports and Airports Development Levy (PAL), and CESS figures run through end-May 2026. The report also does not quantify the investment, employment, exports, or other economic benefits generated in return for the concessions, preventing an assessment from these data alone of their net fiscal or economic impact.
The latest Tax Expenditure Report shows BOI corporate income tax expenditure alone at Rs. 171.37 billion for the 2024/25 basis year, calculated against the standard 30% corporate income tax rate. The underlying BOI tax base was just over Rs. 1 trillion.
The largest component arose from BOI enterprises taxed at 14%, where a tax base of Rs. 623.26 billion generated an estimated Rs. 99.72 billion in tax expenditure relative to the standard rate. Enterprises subject to a zero corporate income tax rate accounted for a further Rs. 52.97 billion in tax expenditure.
Separately, SDPs recorded corporate income tax expenditure of Rs. 18.39 billion on a tax base of Rs. 61.28 billion for 2024/25. The projects were subject to a zero tax rate compared with the 30% standard rate used in calculating the expenditure.
Tax expenditure extends beyond corporate income tax. Sri Lanka Customs data show BOI enterprises received Rs. 76.13 billion in concessions on CID, PAL, and CESS through 31 May 2026. This comprised Rs. 36.86 billion in CID, Rs. 23.05 billion in PAL, and Rs. 16.22 billion in CESS.
SDPs accounted for another Rs. 886 million in expenditure on the three border taxes, while Colombo Port City-related tax expenditure amounted to Rs. 24.3 million during the same period.
On VAT, BOI tax expenditure amounted to Rs. 9.58 billion during 1Q 2026 on a tax base of Rs. 53.2 billion, according to Inland Revenue Department (IRD) data based on taxpayer declarations.
Manufacturing accounted for the largest share, led by the ‘Manufacturing – Others’ category with Rs. 5 billion in VAT expenditure. Wholesale and retail services followed at Rs. 3.45 billion, while textiles and garments accounted for Rs. 349 million.
SDPs recorded a further Rs. 43 million in VAT expenditure during 1Q.
