The Sri Lankan government has developed a fiscal strategy aimed at controlling public spending and increasing revenue collection to ensure economic stability.
The plan focuses on reducing recurrent expenditure from 14.2% of GDP in 2021 to 12.3% by 2025. Key measures to achieve this include freezing non-essential spending on assets such as vehicles and buildings.
Additionally, the government is working to digitalize its key systems, including the introduction of e-procurement and the e-National Identity Card, which are expected to improve efficiency and reduce wasteful spending.
To boost revenue, which was approximately 9.5% of GDP in 2021, the government aims to raise it to 14.2% of GDP by 2025.
This will be driven by economic growth and an expanded tax base. The strategy involves comprehensive reforms to tax policy and administration. Some of the key changes include consolidating taxes by increasing the PAL rate, removing the NBT rate, and simplifying the tax system by reducing the number of taxes such as PAYE and WHT.
To enhance the efficiency of tax collection, the government has established the Large Taxpayers Unit (LTU) at the Inland Revenue Department (IRD) and introduced risk-based audits. Further improvements are being made to the Revenue Administration Management Information System (RAMIS) to better manage tax data and collection.
In 2024, Sri Lanka saw significant progress in its revenue collection efforts, with a 32.2% increase year-on-year, reaching Rs. 3,650 billion by November. Taxes on goods and services were the largest contributor, totaling Rs. 1,974.5 billion.
Government expenditure, on the other hand, increased only slightly by 1.9%, amounting to Rs. 4,881.9 billion by November, which is 70.9% of the annual target.
A reduction in interest payments, due to lower yields on government securities, contributed to the limited increase in spending.
The government’s primary balance showed a surplus of Rs. 927.8 billion, a 180% improvement from the previous year, though the overall budget deficit remained at Rs. 1,217.3 billion. Net borrowing for the year totaled Rs. 1,713.4 billion, below the estimated Rs. 2,333.4 billion.
In line with these fiscal efforts, the government has also presented the 2025 appropriation bill to parliament. The bill outlines a borrowing cap of Rs. 4,400 billion, with a focus on current spending of Rs. 4,218 billion and capital expenditure of Rs. 4,616 billion.
Notable allocations include Rs. 220 billion for the Sri Lanka Army, up from Rs. 214 billion, and Rs. 169 billion for the Ministry of Health’s operational activities, with an additional Rs. 213 billion for its developmental projects.
The fiscal strategy is aimed at stabilizing the Sri Lankan economy and enhancing fiscal sustainability over the medium term. By rationalizing recurrent expenditure and implementing revenue reforms, the government hopes to create a more efficient and sustainable economic framework.
The Sri Lankan government has developed a fiscal strategy aimed at controlling public spending and increasing revenue collection to ensure economic stability.
The plan focuses on reducing recurrent expenditure from 14.2% of GDP in 2021 to 12.3% by 2025. Key measures to achieve this include freezing non-essential spending on assets such as vehicles and buildings.
Additionally, the government is working to digitalize its key systems, including the introduction of e-procurement and the e-National Identity Card, which are expected to improve efficiency and reduce wasteful spending.
To boost revenue, which was approximately 9.5% of GDP in 2021, the government aims to raise it to 14.2% of GDP by 2025.
This will be driven by economic growth and an expanded tax base. The strategy involves comprehensive reforms to tax policy and administration. Some of the key changes include consolidating taxes by increasing the PAL rate, removing the NBT rate, and simplifying the tax system by reducing the number of taxes such as PAYE and WHT.
To enhance the efficiency of tax collection, the government has established the Large Taxpayers Unit (LTU) at the Inland Revenue Department (IRD) and introduced risk-based audits. Further improvements are being made to the Revenue Administration Management Information System (RAMIS) to better manage tax data and collection.
In 2024, Sri Lanka saw significant progress in its revenue collection efforts, with a 32.2% increase year-on-year, reaching Rs. 3,650 billion by November. Taxes on goods and services were the largest contributor, totaling Rs. 1,974.5 billion.
Government expenditure, on the other hand, increased only slightly by 1.9%, amounting to Rs. 4,881.9 billion by November, which is 70.9% of the annual target.
A reduction in interest payments, due to lower yields on government securities, contributed to the limited increase in spending.
The government’s primary balance showed a surplus of Rs. 927.8 billion, a 180% improvement from the previous year, though the overall budget deficit remained at Rs. 1,217.3 billion. Net borrowing for the year totaled Rs. 1,713.4 billion, below the estimated Rs. 2,333.4 billion.
In line with these fiscal efforts, the government has also presented the 2025 appropriation bill to parliament. The bill outlines a borrowing cap of Rs. 4,400 billion, with a focus on current spending of Rs. 4,218 billion and capital expenditure of Rs. 4,616 billion.
Notable allocations include Rs. 220 billion for the Sri Lanka Army, up from Rs. 214 billion, and Rs. 169 billion for the Ministry of Health’s operational activities, with an additional Rs. 213 billion for its developmental projects.
The fiscal strategy is aimed at stabilizing the Sri Lankan economy and enhancing fiscal sustainability over the medium term. By rationalizing recurrent expenditure and implementing revenue reforms, the government hopes to create a more efficient and sustainable economic framework.
