By: Staff Writer
February 10, Colombo (LNW): Sri Lanka has formally operationalised its Tax Policy Analysis Unit (TPAU), a move that senior officials describe as a long-overdue structural correction to decades of fragmented and politically driven tax policymaking. Established under the Ministry of Finance and functioning within the Department of Fiscal Policy, the Unit is a key structural benchmark under the International Monetary Fund’s programme-linked reform framework.
The creation of the TPAU marks a decisive shift towards evidence-based taxation after years of ad hoc tax measures, sudden reversals, and weak analytical foundations that undermined revenue stability and investor confidence. A senior Finance Ministry official described the Unit as “a turning point in fiscal governance,” noting that it centralises tax policy formulation, appraisal, and monitoring under a single technically specialised entity for the first time.
Historically, Sri Lanka’s tax reforms were often shaped by short-term political considerations rather than rigorous analysis. The absence of a permanent institutional body meant that revenue measures were frequently poorly costed, inconsistently designed, and vulnerable to rollbacks. This not only eroded the tax base but also created uncertainty for businesses and taxpayers.
The Government’s decision to operationalise the TPAU comes at a critical moment. Sri Lanka recorded unprecedented income tax and duty revenues in 2025, offering fiscal breathing space after years of crisis. However, authorities are acutely aware that revenue gains alone do not resolve long-standing weaknesses in tax design, exemptions, and equity. The new Unit is expected to help capitalise on these gains by ensuring future policies are sustainable, fair, and growth-oriented.
The operational launch of the TPAU was preceded by a capacity-building programme conducted by the IMF during its recent fact-finding mission. The training exposed officials to modern tax policy tools, including revenue forecasting, tax expenditure analysis, and distributional modelling based on internationally accepted methodologies. Following the programme, IMF officials engaged Treasury Secretary Harshana Suriyapperuma and senior fiscal experts to refine the Unit’s mandate and scope.
According to the Ministry of Finance, the TPAU’s functions include revenue impact assessments, economic analysis of proposed tax measures, evaluation of tax exemptions, and analysis of distributional outcomes. It will also engage key stakeholders and support work on international, regional, and global tax cooperation.
IMF diagnostics have repeatedly flagged governance weaknesses in Sri Lanka’s tax administration agencies, including the Inland Revenue Department and Sri Lanka Customs. The Fund has warned that without a dedicated, technically competent tax policy unit, governments tend to rely on temporary commissions or politically expedient tax changes that weaken compliance and long-term revenue mobilisation.
By embedding analytical discipline into the policymaking process, the TPAU is intended to ensure that future tax reforms are not only fiscally sound but also economically rational and socially equitable.
