Government rules out immediate tax cuts despite higher revenue

Sri Lanka will not reduce its high indirect taxes immediately, Deputy Minister of Finance and Planning Anil Jayantha Fernando said, arguing that the Government must first consolidate revenue gains before changing a tax structure he acknowledged was burdensome.

Fernando said the Government remained committed to fiscal consolidation and indicated that tax relief, including a possible reduction in the 18% Value Added Tax, could be considered once State revenue reached a more sustainable level.

He said the original plan was to increase government revenue to 15.4% of GDP by 2030, but Sri Lanka had already reached 16.7% by the end of 2025.

“Now, even at the end of 2025, we were able to achieve a target of 16.7%,” he said.

Fernando said the Government believed it could continue increasing revenue towards around 18% of GDP by 2030.

That, he said, would create more fiscal space for public investment and eventually allow the Government to reconsider the present tax structure.

“The present tax structure, there are some issues we understand,” Fernando said, referring to the 18% VAT rate as well as corporate, personal income and taxes on dollar earnings.

However, he said the Government could not reduce indirect taxes at present without weakening revenue mobilisation.

“At this particular moment, we can’t bring it down without damaging this revenue mobilisation,” he said.

Fernando said future tax reforms would be guided by principles of fairness, simplicity and convenience.

Looking ahead to the next Budget, he said the Government would need to allocate more funds to infrastructure, including roads, railways, rural connectivity and logistics, while also maintaining social spending.

He said the broader aim was to use stronger revenue mobilisation to support investment before moving to ease the tax burden.