By: Staff Writer
October 15, Colombo (LNW): Sri Lanka’s business community should not expect immediate reductions in corporate income tax, Value Added Tax (VAT) or the Social Security Contribution Levy (SSCL) in the 2027 Budget, as the Government prioritises stronger tax administration, institutional reforms and economic expansion over across-the-board rate cuts.
Treasury Secretary Dr. Harshana Suriyapperuma, speaking at the Sri Lanka Economic and Investment Summit, defended the existing revenue framework, arguing that the country’s high tax burden was a consequence of earlier economic mismanagement rather than a deliberate policy preference.
“The reason Sri Lanka is at that point is not by choice,” he said, explaining that the Government had inherited a fiscal position that severely restricted its options.
According to Dr. Suriyapperuma, revenue measures have helped increase the revenue-to-GDP ratio from approximately 7% to 16%. Interest payments, which absorbed around 80% of government revenue two to three years ago, have fallen to 40% this year, creating additional room for public spending.
He said revenue was being returned to communities through welfare payments, a diesel subsidy and Rs. 96 billion in lending to small and medium-sized enterprises (SMEs) during the year, with most funding directed towards micro, small and medium enterprises.
The Treasury Secretary indicated that tax rates could be reconsidered once fiscal conditions improve, but emphasised that businesses must first be supported to survive, expand and create employment. This leaves companies awaiting the November 12 Budget speech without an assurance of immediate tax relief.
Instead, the Government is seeking additional revenue through administrative improvements. The Inland Revenue Department (IRD) is legally allowed up to 45 days to process VAT refunds, but Dr. Suriyapperuma said the average processing time had fallen to 29 days. During the second month of the new system, one refund was processed in a single day because input and output tax claims were automatically matched.
He estimated that improved processes and systems were generating Rs. 120 billion in additional revenue, producing a positive cash-flow effect of approximately Rs. 10 billion monthly without increasing tax rates.
The Treasury had also held monthly discussions with business chambers, trade associations and IRD officials for a year to rebuild confidence in the refund system and clear long-pending claims. Whether these improvements become consistently available across businesses will be an important test of the reform.
Dr. Suriyapperuma outlined three broader priorities: achieving independent recognition of economic stability, continuing legislative reform and ensuring implementation. He said amendments to existing laws and new Bills were intended to close regulatory gaps and reduce revenue leakages. Some proposals have completed the process for presentation to Cabinet, while others await responses from the Legal Draftsman’s Department.
He cited Sri Lanka’s 95% score on a global trade facilitation index in April, above the global average according to World Trade Organisation data, and described the Tourist VAT Refund Scheme, operating for nearly a year, as successful.
Digital invoicing is another priority. The first phase, covering exporters, has been completed. The second, involving nearly 36,000 VAT-registered suppliers, is undergoing user testing, with hundreds of businesses volunteering for early participation. Preparations have begun for the third phase, a nationwide rollout.
The Treasury Secretary also pointed to SriLankan Airlines’ restructuring, which secured 99% creditor acceptance against a minimum requirement of 75%, including support from creditors who had taken the airline to court two months earlier.
Beyond revenue administration, the Government is working with the World Bank on a strategy targeting 7% economic growth. Sustained compounding at that rate could double the economy from US$100 billion to US$200 billion, while current per capita income stands at approximately US$5,000.
Dr. Suriyapperuma said competitiveness measures, some expected in the 2027 Budget, would connect domestic SMEs with global value chains and markets of 200 million and two billion consumers, rather than limiting them to Sri Lanka’s 20 million people.
The central question is whether administrative efficiency, legal reform and export expansion can deliver growth quickly enough to create room for future tax reductions. Until then, businesses must plan around existing rates, while the Government must demonstrate that its reform promises translate into investment, jobs and measurable economic gains.
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