The 2026 fiscal narrative of the National People’s Power government has taken a dramatic turn. After President and Finance Minister Anura Kumara Dissanayake assured Parliament that no new tax revisions would be introduced, the latest amendments to the Inland Revenue Act reveal a markedly different trajectory.
The changes reflect a strategic recalibration: expanding the tax base, tightening compliance, and elevating capital taxation all under a government rooted in the Marxist tradition of the Janatha Vimukthi Peramuna.
Ideology Meets Fiscal Reality
The tax revisions suggest a shift from populist reassurance to fiscal pragmatism. Sri Lanka’s revenue-to-GDP ratio remains under pressure, and international obligations require sustained domestic revenue mobilisation.
The Capital Gains Tax increase from 10% to 15% for individuals and up to 30% for trusts and funds signals a redistributive tilt. Capital transactions, often associated with higher-income groups, are now more heavily taxed.
However, the expanded 5% Withholding Tax complicates that narrative. By drawing in professionals across creative, technical, and skilled trades, the policy reaches well beyond the wealthy elite.
Formalising the Informal
A central objective appears to be formalisation. The widened WHT net and mandatory registration rules aim to capture income streams historically underreported. Enhanced information-sharing powers between tax authorities, the Financial Intelligence Unit, and police further strengthen enforcement architecture.
From a governance standpoint, this reduces leakage and strengthens compliance culture. Nevertheless it also increases anxiety among small-scale operators unfamiliar with formal tax processes.
Investment Signals: Mixed Messages
The introduction of 100% capital allowances for investments between $250,000 and $3 million subject to approval by the Board of Investment of Sri Lanka is a clear pro-investment signal.
But this incentive coexists with higher capital taxation and stricter rules for collective investment vehicles. For foreign and domestic investors alike, predictability is paramount. A perceived reversal from a “no tax revision” pledge risks denting policy credibility.
Impact on Households
For salaried workers, the safe harbour provision (requiring 120% of prior-year tax to avoid reassessment) may indirectly pressure higher declarations. For freelancers and service providers, the automatic 5% deduction affects cash flow.
While exemptions for life insurance proceeds and limited filing relief for low-interest earners offer some respite, the broader effect is contractionary: reduced disposable income and heightened compliance costs.
A Calculated Trade-Off
Taken together, the reforms represent a classic trade-off. The government prioritises revenue stability, enforcement strength, and structured compliance over short-term political comfort.
Whether this pivot strengthens long-term fiscal resilience or erodes public trust depends less on the technical merits of the Bill and more on whether citizens perceive fairness and consistency in governance.
The promise of “no new taxes” has given way to a comprehensive restructuring. For Sri Lanka’s taxpayers, the question is no longer whether change is coming but who ultimately bears its weight.