Sri Lanka’s Finance Ministry has taken a decisive institutional step by formally establishing the Tax Policy Analysis Unit (TPAU) under the Department of Fiscal Policy, signalling a move away from ad hoc tax policymaking toward a more rules-based fiscal framework. The initiative comes at a critical juncture as the country seeks to consolidate post-crisis revenue gains under its IMF-supported reform programme.
The operational launch of the TPAU was accompanied by a two-week technical training programme conducted by the International Monetary Fund from January 19 to 30, focused on strengthening analytical capacity in tax policy design and reform evaluation. Senior IMF officials subsequently engaged with Treasury Secretary Dr. Harshana Suriyapperuma and fiscal policy leadership to discuss how the Unit would be integrated into the Government’s decision-making process.
According to the Finance Ministry, the TPAU has been mandated to conduct revenue forecasting, economic and distributional analysis of tax measures, evaluation of tax expenditures, stakeholder engagement, and work on international taxation and cross-border tax cooperation. These functions address long-standing gaps in Sri Lanka’s fiscal architecture, where tax policy decisions were often fragmented across institutions or driven by short-term political considerations.
The Unit’s creation follows a year in which Sri Lanka recorded historic highs in income tax and duty collections, achieved largely through rate increases and base-broadening rather than administrative reform. Economists have warned that without a permanent analytical mechanism, such gains risk erosion through exemptions, poorly costed policy reversals, or politically motivated concessions.
IMF guidance has consistently emphasised the importance of dedicated tax policy units within finance ministries, particularly in low- and middle-income countries. In its Fiscal Affairs Department recommendations, the Fund argues that durable revenue mobilisation depends on technical capacity for forecasting, equity analysis, and expenditure review—functions that temporary commissions or external consultants cannot sustainably provide.
From an investor perspective, the establishment of the TPAU is seen as a credibility-enhancing reform. By institutionalising tax analysis within the fiscal framework, the Government may reduce uncertainty around revenue projections and signal greater commitment to policy continuity, a key concern following Sri Lanka’s history of abrupt tax changes.
However, analysts caution that the Unit’s effectiveness will depend on political buy-in and its ability to influence final decisions. Without insulation from short-term pressures, even technically sound analysis risks being sidelined. Nonetheless, the TPAU represents a structural reform aligned with IMF benchmarks, aimed at anchoring fiscal management in evidence rather than expediency
