The Inland Revenue Department (IRD) recently announced that 200,000 new taxpayers were registered so far this year, along with 18,000 newly registered companies. According to the IRD, they were given a revenue target 18% higher than that of the previous year (2024). Despite the challenge, they have surpassed expectations by collecting Rs. 2,080 billion to date, the highest revenue collection in history.

This is a significant development for a country that has long struggled with narrow tax coverage and heavy dependence on indirect taxes, and this achievement deserves recognition, especially amid ongoing economic pressures. A broader tax base is essential for long-term economic stability. At the same time, when more individuals and businesses contribute, the Government can rely less on indirect taxes, which disproportionately burden lower- and middle-income groups. In theory, widening the tax net should pave the way for a fairer tax system.

However, behind the said achievement, there are concerns that continue to impact both income taxes and indirect taxes in Sri Lanka. For the average citizen, taxation remains a confusing and often stressful process. The lack of awareness, practical challenges and the absence of trust in the system all contribute to reluctance among taxpayers.

With the deadline for filing tax returns approaching, these issues have become more visible. Social media platforms are filled with questions, contradictory advice and expressions of confusion. Instead of showcasing success stories from new taxpayers, online discussions reveal the overwhelming number of Sri Lankans who are unsure about how to file their returns correctly. Many are struggling to determine how to declare assets, report various forms of income or handle the online systems. While tax consultants exist, not everyone can afford their services and many people still underestimate the importance of getting professional help.

At the same time, there are recurring complaints about the IRD’s digital system. The website’s forms are often described as complex, unclear and in some cases lacking adequate instructions. Some users report technical issues, while others point out inconsistencies or ambiguous sections that lead to confusion. For individuals filing taxes for the first time, especially those without accounting knowledge or support, these challenges can be discouraging enough to give up completely or file incorrectly.

This situation highlights a significant gap in the IRD’s awareness-raising efforts. While it has taken steps to educate the public, including through notices and social media posts, these efforts have not yet reached the level required for a country that is expecting hundreds of thousands of new taxpayers each year. The authorities, civil society organisations and professional bodies could contribute by conducting awareness-raising programmes. Tax literacy should not be limited to those with financial expertise. Instead, it must be accessible to everyone.

Beyond these practical issues lies perhaps the biggest challenge of all, trust. Many Sri Lankans remain unconvinced that their tax contributions are being used responsibly or productively. This skepticism is based on years of mismanagement, inefficiency and corruption cases. When citizens don’t see tangible benefits from their tax payments or recognise that certain services they enjoy are in fact funded by their tax payments, they feel less motivated to comply with the authorities’ requests to pay taxes. This attitude makes it harder for the Government to meet revenue targets without resorting to higher indirect taxes. In this context, the Government must do more than just enforcing rules or announcing numbers. It must actively demonstrate how the tax revenue is improving people’s lives. Clear reporting and transparent expenditure tracking on how funds are allocated can help rebuild confidence. Without this trust, even the best tax reforms will fail to encourage compliance.

While we recognise the IRD’s achievement, there is a lot more to be done. There are many who still don’t pay taxes at all or adequately despite legally qualifying to be income tax payers. Among them are business figures of various levels whose income does not get recorded accurately. There are also those who provide services to foreign clients, and don’t receive their income to Sri Lankan bank accounts. These are practical concerns that the IRD should look at if it is to continue its mission.

At the end of the day, expanding the tax base is not just about laws, deadlines or impressive statistics. It requires addressing the deeper, indirect issues that affect the tax system such as complex processes, the lack of awareness, limited access to guidance and mistrust in public institutions. The IRD has achieved a milestone that deserves recognition. However, sustaining it will require meaningful reforms, communication and commitment to making taxation fair, transparent and people-friendly.