Sri Lanka tax system reforms face renewed scrutiny as Parliament pushes for a wider tax base and stronger revenue collection.
Sri Lanka’s tax system faces new calls for modernisation as the Government pushes to widen the tax base and increase efficiency of government revenue collection.
The Parliamentary Committee on Ways and Means has placed fresh emphasis on reforming taxation and on strengthening the mechanisms used to collect state revenue.
The committee examines taxation, tariffs and other government revenue. It also recommends changes to existing policies when necessary.
Past reforms have increasingly focused on bringing more individuals and businesses into the formal tax system instead of relying mainly on higher tax rates.
Sri Lanka has already introduced several measures aimed at broadening the tax base. Under Budget 2026, the Government proposed lowering the annual turnover threshold for VAT and the Social Security Contribution Levy from Rs. 60 million to Rs. 36 million from April 1, 2026.
Separately, proposed amendments to the Inland Revenue Act include wider withholding tax coverage and changes to capital gains taxation. They also contain measures intended to strengthen tax administration and enforcement.
Officials have reported improved tax compliance following restructuring within the Inland Revenue Department. According to the President’s Media Division, compliance increased from around 40–45% to approximately 70–75% after administrative changes.
However, long-standing concerns remain over the complexity of the Sri Lanka tax system, lengthy appeal procedures and difficulties recovering unpaid taxes.
Previous work by the Committee on Ways and Means found that tax administration faced legal constraints. It also identified technical problems involving the Revenue Administration Management Information System and management weaknesses within the Inland Revenue Department.
The committee’s latest intervention therefore renews attention on modernisation and stronger administration as Sri Lanka seeks to build a broader and more sustainable revenue base.
