• Dept. meets IMF revenue targets

The Inland Revenue Department (IRD) will shift its focus away from introducing new tax measures and towards strengthening administrative efficiency and tax compliance, according to Commissioner General R.P.H. Fernando, who says the department is entering a new phase after meeting its International Monetary Fund (IMF)-mandated revenue goals for 2025.

“We will be concentrating more on streamlining our tax administration and to improve our tax compliance, especially return and payment compliance,” Fernando said, emphasising that the IRD’s immediate priority was “to register the people who have not yet been registered and who will actually be in the tax payment category”.

She noted that no new tax increases were planned at this stage, aside from recent measures such as lowering the Value-Added Tax (VAT) registration threshold. Several reforms, such as the removal of the tax exemption for service exports and the increase in the personal income tax-free threshold from Rs. 1.2 million to Rs. 1.8 million, are already in effect.

Fernando’s comments come as Sri Lanka records one of its strongest revenue performances in recent years. For the first nine months of 2025, tax revenue reached approximately Rs. 1,642 billion, or 102% of the IMF target of Rs. 1,610 billion. Revenue growth was driven by revived vehicle imports, which generated over Rs. 429 billion in the first half of the year, higher VAT receipts from elevated prices, and stronger corporate tax compliance.

However, the country’s improved revenue position has reignited debate over how Government funds are being used. Public frustration continues to rise as debt repayments and recurrent expenditures consume most of the State’s income, while visible development progress remains limited.

Ministry of Finance Department of National Budget Director General Jude Nilukshan explained that the Government’s fiscal constraints were deeply structural. “Only about 13% of GDP is available for public expenditure,” he said. “The majority of Government earnings are allocated to debt repayments and servicing, with a significant portion also covering recurrent expenditures, including welfare and subsidies.”

Despite these limitations, Nilukshan insisted that public finances were being managed with greater discipline than in the past. “This year, for the first time, we have successfully achieved our revenue targets,” he noted, highlighting a major turnaround in cash flow management. 

One of the most significant improvements, he said, was the timely settlement of Government bills. “We now ensure that no bill remains unpaid for more than three months. All prior and forwarded bills have been settled,” he said. This shift aims to support contractors, suppliers, and local authorities who previously faced severe payment delays.

According to Nilukshan, capital expenditure allocation has reached Rs. 1.3 billion, or roughly 4% of GDP, and “no projects are on hold due to a lack of funds”. This represents a significant improvement compared to past years when budget shortfalls routinely delayed development work.

He acknowledged that a persistent imbalance remained between recurrent and capital spending. “The public rightly expects capital expenses that boost the economy, such as new infrastructure,” he said. “A greater allocation for capital expenditure is essential to catalyse a significant boom in our economic development.”