Sri Lanka’s upcoming budget, to be presented next Friday by President Anura Kumara Dissanayake, is set to redraw the country’s economic landscape with a sweeping expansion of the tax net, tighter revenue collection, incentives for exporters, and targeted relief for low-income groups. Government insiders confirm that the new budget will aggressively pull previously untaxed sectors into the formal system, signalling that no income stream will remain untouched as the state races to rebuild fiscal stability under IMF supervision.
The government is preparing to raise revenue by optimizing tax collection across the Sri Lanka Customs, Inland Revenue Department and Excise Department, with a combined target of Rs. 4.6 trillion. This represents an increase of about Rs. 600 million and is expected to be achieved through stricter enforcement and wider tax coverage. While this push will tighten compliance, officials insist that the wider economic strategy includes incentives for exporters and small and medium-sized industries to boost production, foreign direct investment and foreign exchange inflows.
In line with IMF recommendations, the budget will prioritise export growth, foreign investment, and continued macroeconomic discipline. The government has already acknowledged its struggles in servicing external debt, but it is expected to maintain current tax policies to avoid destabilising businesses and investors. Taxes on vehicle imports will remain unchanged, offering predictability to the automotive market.
For vulnerable income groups, the budget will include a relief package aimed at easing the cost-of-living pressure. The move comes as the Treasury continues to navigate severe foreign currency shortages. Earlier this year, Sri Lanka struggled to honour foreign debt payments but averted default through emergency access to dollars from the Central Bank of Sri Lanka and the fourth IMF tranche worth US$350 million.
The 2025 Mid-Year Fiscal Status Report provides a snapshot of the country’s debt burden. From January 1 to June 30, 2025, total debt service payments reached US$1,358.9 million, with US$863.6 million paid toward principal and US$495.3 million toward interest. The report confirmed there were no external arrears as of end-June 2025, an achievement credited to IMF-backed fiscal discipline and tighter debt management.
Sri Lanka’s external debt stood at US$37.1 billion by June 2025. Multilateral lenders account for 36 percent of the total, commercial debt for 34 percent and bilateral loans for 30 percent. Notably, around 81 percent of all commercial loans are tied to international sovereign bonds, while the rest are syndicated loan facilities, revealing the country’s continued exposure to global capital markets.
As the budget is unveiled, Sri Lanka will be watched closely to see whether the expansion of the tax net and the promised export-driven recovery can coexist with rising public pressure, IMF demands and a fragile post-crisis economy. The message from the government appears clear: every rupee counts, every sector will pay, and recovery will not come without shared sacrifice.
