Sri Lanka’s Budget 2026 is unlikely to introduce new major taxes or rate hikes but could bring in marginal tax relief, such as the removal of  Social Security Contribution Levy (SSCL) on financial services or adjustments to Value Added Tax(VAT) thresholds, Capital Alliance Limited (CAL) Head of Research Trisha Peries said.

In a statement on the upcoming budget, she said that even without new taxes, the Government’s revenue should stay strong to keep the primary surplus at 2.3% of GDP.

“A major driver will be the continuation of vehicle imports, which have already generated significant tax inflows for this year,” she said, adding that the collections from vehicle imports are exceeding initial targets to reach Rs. 700 billion by year’s end, representing about 15% of total tax revenue. 

However, she said that while there is likely to be a tapering off of this initial pent-up vehicle demand, these imports will help the Government stay on course to meet its revenue targets for 2026. 

On the expenditure side, Peries said that the main focus will be capital investment. 

“Capital expenditure allocation is likely to fall between Rs. 1 to 1.5 trillion, somewhat similar to the Rs. 1.3 trillion allocation made for this year,” she added.

She noted that the actual spending on capital allocations is expected to land at about Rs. 1 trillion due to implementation delays.

Further, she said that government expenditure will have an interest cost reduction coming in from the step down in the nominal coupon rate of treasury bonds held by the superannuation funds from 12% to 9% in the second half of 2026, according to the domestic debt restructure agreement.

“While the greater interest cost reduction will come in 2027, when the Central Bank holdings also see a step down in coupon rates, the reduced stress on government borrowing from next year will help keep interest rates lower as well,” Peries said.