June 29, Colombo (LNW): Sri Lanka’s government revenue is projected to moderate in 2026 following a stronger-than-usual performance this year, with the Ministry of Finance attributing the expected decline largely to the fading impact of exceptional tax collections generated by the resumption of vehicle imports.
According to the Fiscal Strategy Statement 2027, total government revenue, including grants, is forecast to decrease from 16.7 per cent of Gross Domestic Product (GDP) in 2025 to 15.8 per cent in 2026. The Ministry noted that the anticipated reduction reflects a return to more typical revenue levels rather than a deterioration in tax collection.
Officials explained that the reopening of vehicle imports in 2025 resulted in a significant one-off increase in tax receipts, boosting government income beyond normal expectations. As this temporary effect subsides, revenue growth is expected to stabilise next year.
The report also highlighted the considerable progress made since the country’s economic crisis, recalling that government revenue had fallen to just 8.4 per cent of GDP in 2022—one of the lowest ratios recorded globally at the time. Since then, a series of tax reforms and improvements to revenue administration have helped broaden the tax base, strengthen compliance and curb tax evasion and revenue leakages.
Despite the positive trajectory, the Ministry warned that external developments could affect revenue performance in the coming years. It identified escalating geopolitical tensions in the Middle East, uncertainties surrounding global trade and possible volatility in international energy markets as key risks that could undermine economic activity and place pressure on government finances.
The Ministry stressed that maintaining fiscal discipline, improving tax administration and safeguarding economic stability would remain critical to achieving the country’s medium-term revenue and budgetary targets.