The Sri Lankan economy has displayed clear signs of recovery in 2024, with notable growth in real Gross Domestic Product (GDP) during the first half of the year, higher tax revenues, lower inflation, and increased foreign currency reserves.
The Sri Lankan rupee strengthened, recording an overall appreciation of 8.2percent up to the end September 2024, finance ministry sources said .
The reforms implemented under the Extended Fund Facility arrangement of the International Monetary Fund (IMFEFF) supported the economic recovery benefiting the living conditions ofthe people.
Maintaining macro stability and restoring debt sustainability has been a cornerstone for improving fiscal operations in 2025 and beyond to reach medium term primary balance target of 2.3 percent of GDP by end 2025
Government revenue, including grants, rose by 40.5% (or Rs. 739.3 billion) in the first eight months of 2024 compared to the same period in 2023, driven largely by a 41.4% increase in tax revenue.
Tax revenue from goods and services, which constitute 60.5% of the total tax revenue, surged by 59.8% (Rs. 531.9 billion), totaling Rs. 1,421.3 billion by August 2024, up from Rs. 889.5 billion in the previous year.
The increase is partly attributable to Sri Lanka’s commitment under the IMF’s Extended Fund Facility (EFF), which aims to raise tax revenue to 15.1% of GDP by 2025.
Despite these gains, the country still faces challenges due to its persistent tax gap, which is the difference between potential and actual tax collections, finance ministry claimed .
This gap is caused by outdated tax policies, weak enforcement, and a lack of data necessary for evaluating tax performance accurately.
To address these issues, the Ministry of Finance acknowledges the importance of conducting a comprehensive tax gap analysis to refine tax policies and enforcement, focusing on personal income tax, corporate income tax, and value-added tax (VAT).
Revenue from income taxes grew by 16.3% to Rs. 624.7 billion during the first eight months of 2024, largely driven by changes in tax policies and improved administration.
Personal and corporate income taxes also saw a 16.3% rise compared to the same period in 2023, with revenue from the Advance Personal Income Tax (APIT) increasing by 32.6% to Rs. 31.7 billion.
These improvements reflect a combination of better enforcement measures, including mandatory electronic tax filing and enhanced information-sharing between financial institutions and the Inland Revenue Department.
