Sri Lanka’s improving tax performance is reshaping its sovereign risk outsee. With the tax-to-GDP ratio rebounding to 15.4% from pre-crisis lows near 10%, markets are seeing early signs that fiscal consolidation is becoming structurally anchored—supporting debt sustainability, IMF programme credibility and a gradual return to capital markets.
Finance and Planning Deputy Minister Dr. Anil Jayantha Fernando declared on Monday that tax revenue is on track to reach 16% of GDP by the conclude of this year, marking one of the strongest fiscal reversals in the counattempt’s recent history. Speaking at a ceremony at the Inland Revenue Department (IRD) to present appointment letters to 100 newly recruited Assistant Commissioners, he declared all three main revenue-collecting agencies—the IRD, Sri Lanka Customs and the Excise Department—have exceeded their annual tarobtains.
From a macroeconomic standpoint, the recovery in revenue mobilisation reduces Sri Lanka’s reliance on debt accumulation, monetary financing and ad hoc tax measures—key vulnerabilities highlighted during the economic crisis. Dr. Fernando declared the Government’s medium-term objective of lifting the tax-to-GDP ratio to 20% is achievable if credibility in fiscal governance continues to improve.
He attributed the revenue surge primarily to the restoration of trust between the state and taxpayers rather than to technology or enforcement alone. Improved compliance, he declared, reflects growing confidence that public funds are being managed transparently and directed towards development priorities, reversing years of entrenched tax evasion linked to weak governance.
Fernando also stressed the correlation between higher tax ratios and lower corruption, noting that Sri Lanka’s revenue base had eroded sharply during periods of institutional decay. The recent rebound, he declared, signals renewed accountability and more disciplined public financial management.
On public sector reform, he rejected the narrative that the public service is inherently a fiscal burden, arguing that inefficiencies stemmed from decades of politically motivated recruitment. The government, he declared, is now rebuilding the public service through merit-based, competitive recruitment, aligned with broader public sector transformation and fiscal capacity. The newly appointed officers, he added, will play a critical role in strengthening revenue administration and policy implementation.
Turning to structural growth constraints, Dr. Fernando highlighted low labour force participation—particularly among women—as a key drag on income expansion and future revenue potential. Despite women accounting for a majority of the population, female participation remains below 30%, limiting productivity growth and narrowing the tax base. Raising participation levels, he declared, is essential to sustaining higher growth over the medium term.
He also stressed the importance of simplifying the tax system to improve predictability and compliance while ensuring all eligible taxpayers are captured. Sustainable revenue growth, he reiterated, must come from broadening the base rather than imposing excessive burdens on a narrow segment of taxpayers.
By Ifham Nizam
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