By: Staff Writer

December 12, Colombo (LNW): Sri Lanka’s efforts to stabilize the economy are being undermined by the persistent growth of tax exemptions, which continue to erode government revenue and weaken fiscal discipline.

The Ministry of Finance’s Tax Expenditure Statement for November 2025 reveals that exemptions reached Rs. 285.7 billion in the first half of the year, a figure that represents more than half of all tax reliefs granted since April 2023.

These concessions, totaling Rs. 787.1 billion over the past two years, cover income taxes, VAT, excise duties, customs, and other indirect levies.

While designed to stimulate investment and protect essential sectors, their scale raises questions about efficiency and equity.

Income tax exemptions for 2023/24 alone accounted for Rs. 131.5 billion, including corporate concessions under legacy frameworks. Consumption and trade tax exemptions in 2024 totaled Rs. 369.9 billion, largely driven by VAT reliefs for essential goods and priority sectors.

Experts argue that the ongoing reliance on exemptions has unintended consequences. Although these reliefs aim to shield consumers from high prices and encourage investment, they have contributed to widening fiscal deficits,

Limiting the government’s capacity to fund public services. VAT remains the largest component of exemptions, signaling that structural reforms to broaden the tax base have yet to achieve meaningful results.

Social Security Contribution Levy exemptions, amounting to Rs. 61.7 billion in the first half of 2025, primarily target electricity, water, fuel, and healthcare sectors, reflecting a policy choice to maintain affordability.

Customs and excise duty reliefs, meanwhile, support strategic sectors such as agriculture, energy, and construction, but the aggregate fiscal cost remains substantial. Recovery actions for luxury vehicle tax exemptions may partially offset losses, though the overall burden persists.

The continuation of high exemptions poses risks to Sri Lanka’s IMF-backed medium-term revenue strategy, which relies on higher VAT, improved income tax collections, and better administration of the Social Security levy.

Analysts caution that unless exemptions are carefully scrutinized and aligned with fiscal objectives, the country could face growing deficits and reduced public investment capacity.

The Finance Ministry plans to integrate tax expenditure reporting into the budget cycle, providing clearer benchmarks, regular reviews of high-cost concessions, and sector-specific impact analysis.
By distinguishing between policy-driven reliefs for essential sectors and legacy exemptions from outdated regimes, policymakers hope to optimize revenue without stifling economic growth. Still, with exemptions already at record levels, reforming the system will require decisive measures to balance fiscal stability and public benefits.

By: Staff Writer

December 12, Colombo (LNW): While Sri Lanka’s tea industry has weathered Cyclone Ditwah with minimal reported losses, the recent disruption highlights the fragile nature of the nation’s tea supply chain and the heavy reliance on well-coordinated but vulnerable logistics.

The Colombo Tea Traders’ Association (CTTA) reported that harvesting, transportation, and auction activities are returning to normal, yet the cyclone temporarily paralyzed roads, disrupted deliveries, and damaged machinery in a limited number of warehouses.

Although the CTTA assured no losses in manufacturing capacity, the incident exposed critical weaknesses in infrastructure connecting plantations to Colombo. Road closures forced the construction of temporary access routes to ensure green leaf transport, while floods in Kelani River areas damaged tea bagging equipment, illustrating how quickly natural events can disrupt production and export schedules.

Sri Lanka produces over 220 million kilograms of tea annually, yet this high output depends on the smooth functioning of a complex supply chain involving smallholders, exporters, and brokers. Any disruption even short-term—threatens financial flows, export commitments, and the reputation of Ceylon Tea abroad. Critics argue that reliance on temporary solutions, rather than permanent infrastructure investment, leaves the industry perpetually exposed to natural disasters.

While the industry has historically demonstrated resilience transitioning to digital tea auctions during COVID-19 and maintaining exports during economic crises experts warn that the recurrence of climate-related events like Cyclone Ditwah underscores the need for proactive risk management, climate-resilient infrastructure, and contingency planning.

The CTTA’s network of stakeholders, from planters to smallholders, has repeatedly stepped in to resolve crises. Yet the cyclone serves as a stark reminder that the industry’s growth and global reputation remain heavily dependent on reactive measures rather than systemic preparedness. Analyst’s caution that without sustained investment in roads, storage facilities, and flood-proof equipment, even minor cyclones could trigger far more serious disruptions in the future.

The recent events emphasize the urgent need for a strategic overhaul of the tea supply chain, balancing short-term recovery with long-term resilience, to protect both domestic livelihoods and international markets.

By: Staff Writer

December 12, Colombo (LNW): Sri Lanka’s struggle to rebuild after Cyclone Ditwah has taken a decisive turn, with the United Nations Development Program (UNDP) issuing an unprecedented call for urgent, affordable international financing to prevent the country from slipping back into economic instability. The UN agency warns that the scale of the disaster flooding 1.1 million hectares and exposing 2.3 million people is far beyond what Sri Lanka can manage without plunging deeper into unaffordable debt.

UNDP Resident Representative Azusa Kubota cautioned that recovery is now “inseparable from the country’s financial fragility,” arguing that Sri Lanka cannot shoulder additional debt after weathering one of its most severe economic crises. “International partners must step up with affordable financing and innovative instruments that enable rapid recovery without pushing the country off the debt cliff,” she said.

UNDP assessments indicate that the worst-affected regions—Puttalam, Kilinochchi, Mullaitivu, and the central highlands—are areas where disaster impacts collide with long-standing vulnerabilities. Many families lived with high debt, informal incomes, and weak access to public services even before the cyclone. More than half of the exposed population was already debt-burdened, raising fears that recovery without assistance would drive households into deeper hardship.

The devastation is extensive. Nearly 720,000 buildings, including 243 hospitals and hundreds of schools, were affected. Over 16,000 km of roads, 480 bridges, and 278 km of rail lines were exposed to floodwaters, severely disrupting mobility and delaying relief operations. In Colombo and Gampaha districts alone, the concentration of exposure has strained essential public services and highlighted the urgent need for long-term relocation solutions for residents living in high-risk zones.

Agriculture has suffered catastrophic losses. More than 530,000 hectares of paddy land were submerged, with Dimbulagala recording the highest inundation. These losses directly threaten food security, as 20–30% of households in affected areas report having less than one week of dry food stocks.

UNDP’s recovery framework prioritises debris clearance, repair of community infrastructure, MSME support, and replacement of essential personal documentation to reconnect families to social services and the banking system. The agency also stressed the need for temporary reinforcement of local governance systems to manage registries, outreach, and targeted assistance.

UNDP’s Crisis Readiness Chief Devanand Ramiah said the cyclone demonstrated how “compounding risks can materialise overnight,” adding that stabilising essential services and rebuilding transport networks must be supported by international donors to ensure a recovery that does not deepen Sri Lanka’s debt burden.

With the nation still reeling from its worst economic collapse in decades, UNDP’s warning is stark: Sri Lanka cannot rebuild unless the world steps forward with concessional financing and innovative recovery tools.

By: Staff Writer

December 12, Colombo (LNW): Sri Lanka may be heading toward another debt-pressure cycle as external repayment obligations are set to accelerate sharply from 2028 onward, despite significant progress in restructuring arrangements with its major creditors.

The latest Quarterly Debt Bulletin issued by the Public Debt Management Office highlights the scale of the challenge: Sri Lanka’s external debt stock rose to USD 37.24 billion by end-September 2025, an increase of USD 100 million.

Although the country remains shut out of international capital markets, it continues to access and service loans from multilateral partners, which now dominate the portfolio alongside restructured commercial and bilateral exposures.

Multilateral lenders account for 37% of the debt stock, commercial creditors 34%, and bilateral partners 29%. Notably, ISBs account for roughly 81% of commercial liabilities, reflecting the weight of past borrowing choices.

Sri Lanka has already repaid USD 1.36 billion in the first half of 2025 over half of the USD 2.45 billion due for the year. But Central Bank Governor Dr. Nandalal Weerasinghe warned that the real stress point lies beyond 2027.

Under current commitments, annual servicing will average USD 2.75 billion until then. From 2028 onward, however, repayments will surge to between USD 3.2–3.5 billion, peaking at nearly USD 4 billion in certain years.

This shift reflects the maturity structure of pre-crisis borrowings, the phased-in repayments from restructuring agreements, and debt taken after the 2022 collapse to stabilise the economy. Analysts argue that without robust export-led growth, stronger fiscal consolidation, and improved governance, Sri Lanka will struggle to meet post-2028 obligations without courting new financial stress.

Restructuring progress has been substantial. Agreements concluded in June 2024 with the Official Creditor Committee and China’s EXIM Bank, alongside amendment arrangements, paved the way for debt treatment implementation. The China Development Bank restructuring was finalised in December 2024.

Commercial debt restructuring has also advanced, with an agreement in principle reached with ISB holders in September 2024 and a bond exchange completed in December with 98% participation. Bilateral restructuring continued through 2025, with Sri Lanka signing agreements with Japan, India, France, Hungary, and the UK, pushing total completion to 94%.

Even SriLankan Airlines, long considered a fiscal risk, has reached an agreement in principle with external bondholders holding USD 175 million in instruments.

Despite these achievements, the reality remains sobering. Restructuring may have eased debt service pressures temporarily, but the medium-term outlook suggests rising risk. Without stronger revenue mobilisation, disciplined spending, and export expansion, Sri Lanka may once again face a sustainability crisis precisely when repayments begin to spike after 2028.

By: Staff Writer

December 12, Colombo (LNW): Sri Lanka’s Inland Revenue Department (IRD) is confronting one of its most difficult enforcement years as officials warn that revenue targets may be increasingly unrealistic in the face of collapsing vehicle imports, stagnant taxpayer expansion, and widespread disruptions caused by the recent cyclone and floods.

A high-level meeting chaired by Deputy Minister of Economic Development Nishantha Jayaweera has now placed urgent pressure on the IRD to produce a “practical and achievable programme” to meet the government’s ambitious annual revenue goals.

The meeting brought together senior Finance Ministry leadership and Commissioner General Rukdevi Fernando, who acknowledged the need to widen the tax net while also reducing procedural burdens that discourage compliance.

According to the Finance Ministry statement, the discussion focused heavily on simplifying tax-return filing, accelerating public awareness programmes, and encouraging voluntary compliance to reduce enforcement costs.

However, senior officials privately admit that the environment has become far more challenging. The near-total halt in vehicle imports once a reliable source of indirect taxes—has severely weakened collections under goods and services levies. Compounding this, the cyclone that inundated large swathes of the country has disrupted livelihoods, destroyed business assets, and delayed the reopening of thousands of micro and small enterprises that make up a significant segment of VAT and income-tax contributors.

For 2025, the government revised its tax revenue target upward by 2.9%, raising it from Rs. 4,590 billion to Rs. 4,725 billion, banking on stronger income-tax performance and increased levies on goods and services. The income-tax target alone has been raised 3.7% to Rs. 1,210 billion, while goods-and-services levies were pushed up 6.5% to Rs. 2,953 billion.

Yet these expectations clash with field realities. Officials on the ground report that audit teams are operating with limited mobility due to flood-damaged roads, while taxpayers in the worst-affected districts have sought extensions, citing loss of records, damaged premises, and disrupted business activity

. Many provincial IRD offices are functioning with reduced staff due to displacement and transport challenges.

The push to expand the tax net long seen as the country’s most urgent revenue reform faces further constraints. Informal-sector workers and small traders, who should form a large share of new taxpayers, have been hit hardest by weather-related losses.

For many, tax registration has become a lower priority than rebuilding livelihoods. Officials warn that without targeted relief or phased filing arrangements, enforcement may be counterproductive and further erode compliance.

Deputy Minister Jayaweera has instructed the IRD to urgently outline a roadmap that considers these economic setbacks while ensuring the state does not fall short of its fiscal commitments under the IMF programme.

But revenue experts caution that without restoring trade flows especially vehicle imports and deploying stronger digital systems to widen the tax base, this year’s targets risk becoming mathematically unattainable.

By: Staff Writer

December 12, Colombo (LNW): Jetstar’s newly announced direct service between Melbourne and Colombo is expected to significantly strengthen travel demand, tourism flows and aviation competition between Australia and Sri Lanka, as the carrier prepares to operate the only low-cost non-stop link between the two countries starting 25 August 2026.

The move comes at a time when Sri Lanka’s tourism sector is rebuilding momentum and Australia has emerged as one of its fastest-growing long-haul visitor markets. Jetstar CEO Stephanie Tully said the decision reflects both rising customer interest and the airline’s wider international expansion drive.

“This new route is a major step in our growth strategy. It creates an affordable pathway for Australians to experience Sri Lanka’s beaches, culture and heritage while supporting two-way tourism,” she said.

Industry analysts say the route could deliver a significant economic boost, with more than 100,000 budget-friendly seats annually expected to stimulate both leisure and diaspora travel.

They note that the lack of direct flights from Australian carriers has long been a gap in the market, often forcing travellers onto longer, costlier connections through Southeast Asian hubs.

Melbourne Airport CEO Lorie Argus hailed the launch as a milestone that strengthens Victoria’s link to South Asia. She highlighted that Sri Lanka is among the region’s fastest-emerging destinations and said the new flights would support both tourism and family travel.

“Jetstar’s long-standing partnership with Terminal 4 has grown dramatically over the past decade. This new Colombo route reinforces Melbourne’s position as the airline’s main international base,” she said.

Jetstar’s Boeing 787 Dreamliners, which will operate the year-round service, are in the midst of a major overhaul. Beginning early next year, the airline will more than double its business-class capacity, improve economy seating, install Wi-Fi connectivity and modernise cabin interiors.

Additionally, the addition of a lie-flat crew rest module allows flights of up to 16 hours, enabling the airline to unlock more long-haul destinations beyond Colombo.

The airline has been on an aggressive expansion path, unveiling 14 new routes in 2025, nine of which are international. Over two years, Jetstar has added 13 aircraft, allowing the carrier to scale operations rapidly. The Colombo launch forms part of this broader aviation rebound.

Jetstar is also preparing for an unprecedented Christmas travel period, forecasting nearly six million passengers over December and January. Melbourne alone is expected to handle 1.7 million travellers during the summer peak.

The Colombo flights will run thrice weekly, with departures from Melbourne at 12:00, arriving in Colombo at 17:50, and returning from Colombo at 19:50, landing in Melbourne at 10:00 the next morning.