Sri Lanka’s 2026 budget focuses on tax collection, raising revenue as per IMF's bailout condition

Colombo, Nov 7 (PTI) Sri Lankan President Anura Kumara Dissanayake on Friday presented the 2026 budget, focused on tax collection and raising state revenue, key conditions in the ongoing IMF bailout-led economic revival.   Dissanayake, in his lengthy budget speech, the second of his government since being elected last year, said, “A modern tax audit framework will be introduced for returns filed from January 2026, using risk-based selection to improve transparency, reduce discretion, and curb corruption.” “It is projected that State revenue will exceed 15.3 per cent of the GDP by 2026. Our goal is to increase this up to 20 per cent in the long term,” Dissanayake, who is also the minister of finance, added.  The Sri Lankan President said, LKR 2000 million would be allocated to create a new home for the Tax Department to bring all operations under one roof to provide “service delivery, support digitalisation, and enhance the efficiency and sustainability of tax collection.” The Customs Import Duty rates will be revised under the National Tariff Policy, with a phased plan to gradually eliminate para-tariffs while minimising revenue loss, the President said.  To broaden the tax base, the government proposed to reduce the annual turnover threshold for VAT and Social Security Contribution Levy registration from LKR 60 million to LKR 36 million.

“The total number of registered taxpayers has increased by 3,00,000 as of September 30, 2025, compared to 2024”.

LKR 4,290 million has been allocated, with support from the Government of India, to build 2,000 houses for Malayagam estate workers or the Indian origin Tamil community in several provinces.

Dissanayake said unemployment has reduced from 4.5 per cent in the first quarter of 2024 to 3.8 per cent in the first quarter of 2025.  He said this year’s debt servicing totals USD 2,435 million, of which USD 1,948 million has been repaid by September.  “The remaining USD 487 million is scheduled for repayment by December. This marks an increase of USD 761 million compared to last year,” he added.

The government was confident of achieving its target and aims to reduce the debt-to-GDP ratio below 90 per cent by 2032, Dissanayake said.  Showing its sensitive side, the government allocated  LKR 100 million to provide services for pet burials, cremation and the care for stray animals in the budget.  President Dissanayake said, “This is a problem in the populated suburbs with no space to bury or cremate pets.” PTI CORR RD RD RD