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.
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