Sri Lanka Faces Billion-Rupee Tax Revenue Losses

Sri Lanka’s tax exemptions have surged, undermining fiscal stability and limiting the impact of economic reforms. The Ministry of Finance’s November 2025 Tax Expenditure Statement shows exemptions reached Rs. 285.7 billion in the first half of 2025, over half of the total tax reliefs since April 2023.

Total exemptions over the period amount to Rs. 787.1 billion, spanning Corporate and Personal Income Taxes, Value Added Tax (VAT), Excise Duty, Customs, and the Social Security Contribution Levy. VAT exemptions dominate, covering essential goods, utilities, medicines, and food supply chains. Other significant reliefs include protections under the Social Security Levy for electricity, water, fuel, and healthcare, along with customs and excise exemptions supporting agriculture and transport sectors.

The Ministry plans to integrate tax expenditure analysis into the annual budget, aiming to scrutinize high-cost exemptions, evaluate sectoral impacts, and align reliefs with fiscal consolidation objectives. Analysts warn that without reform, large exemptions could hinder revenue growth and constrain public spending on essential services.

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