• Tax collection reached Rs. 2,534 b, with key agencies already surpassing half of their annual targets
• The rise was led by VAT and motor vehicle duties, which helped to narrow the budget deficit

Sri Lanka’s tax revenue collection increased by over 28% year-on-year (y-o-y) in the first seven months of the year, with the three main revenue collection agencies surpassing 50% of their annual revenue targets, the Ministry of Finance data showed.

According to the Monthly Fiscal Review report by the Finance Ministry, tax collection stood at Rs. 2,534 billion by the end of July, a 28% increase from the corresponding period in 2024.

The revenue from income tax increased by 8.3% to Rs. 525 billion in the first seven months, while revenue from value-added tax (VAT) increased by 27.5% to Rs. 935 billion.

Moreover, the key revenue-collecting agencies achieved 55% of their annual estimates, as Customs became the largest contributor, representing 48% of the tax revenue collected, and this surpassed the revenue collected from the Inland Revenue Department (IRD).

The second largest contributor is the IRD, representing 46% of the tax revenue collected.

Revenue from excise duty on motor vehicles significantly increased by 528% to Rs. 193 billion during the period, while excise duty on cigarettes decreased by 21.5% to Rs. 54 billion.

However, revenue from excise duty on petroleum marginally decreased by 0.5% to Rs. 117 billion in the first seven months of 2025.

The government’s recurrent expenditure increased by 12.3% and capital and net lending declined by 19.7% during the period.

Total interest payments by the government increased by 10% to Rs. 1,530 billion in the first seven months.

The budget deficit, in nominal terms, narrowed by 36.3% to Rs. 556.1 billion in the first seven months, mainly due to the increase in government revenue, including grants by 26.5% to Rs. 2,734.9 billion.