New Revenue Strategy Aims to Widen Tax Net, Target High Earners

COLOMBO (News 1st); The Sri Lankan Government has unveiled the objectives of its Medium-Term Revenue Strategy (MTRS) for 2027-2031, setting out an ambitious roadmap aimed at strengthening tax collection, broadening the tax base and supporting long-term fiscal sustainability.

Published by the Ministry of Finance, Planning and Economic Development, the strategy forms part of commitments under the International Monetary Fund (IMF)-supported programme and outlines the key policy priorities that will guide future tax reforms.

According to the document, Sri Lanka has already achieved a significant fiscal adjustment since 2022, with the country's tax-to-GDP ratio nearly doubling by 2025. The next phase of reforms will focus on building a revenue system that is efficient, equitable, simple and predictable while supporting fiscal and debt sustainability over the medium term.

The Government expects tax revenue to reach 17 percent of GDP by 2031 through a combination of administrative and policy reforms. The Medium-Term Fiscal Framework currently projects tax revenue of about 14.2 percent of GDP over the 2027-2031 period, with the MTRS seeking to increase sustainable revenue mobilisation beyond that baseline.

The strategy is built around five key objectives:

Objective 1: Modernise revenue administration

Objective 2: Improve the efficiency and competitiveness of the tax system

Objective 3: Enhance equity and fairness

Objective 4: Strengthen governance, accountability and predictability

Objective 5: Sustain revenue mobilisation

Among the Government's priority commitments are limiting new corporate income tax incentives to exceptional cases, reviewing the personal income tax system to better capture high-income earners, assessing the impact of Value Added Tax (VAT) on different income groups, and gradually phasing out para-tariffs while introducing replacement measures where necessary.

A major focus of the strategy will be the modernisation of tax administration through stronger digital systems, improved data sharing, risk-based compliance management and enhanced taxpayer services across the Inland Revenue Department (IRD), Sri Lanka Customs (SLC) and the Excise Department. Authorities also plan to strengthen taxpayer registration, improve information matching and target high-risk segments, including large taxpayers, professionals, high-wealth individuals and self-employed persons.

The reforms are also expected to widen the tax base by reviewing exemptions and concessions, improving taxation of professionals and businesses, bringing more informal and digitally enabled economic activity into the tax system and strengthening the taxation of property, capital gains and high-value transactions.

The strategy will place greater emphasis on fairness by ensuring taxpayers with similar economic circumstances are treated consistently and by improving the taxation of high-income and high-wealth individuals. Tax reforms will be coordinated with social protection measures to minimise the burden on vulnerable households while avoiding poorly targeted exemptions that narrow the tax base.

The Government also plans to strengthen transparency and accountability through regular monitoring of tax reforms, annual assessments of revenue performance and improved reporting mechanisms. Where revenue targets are missed, compensating measures will be introduced to keep fiscal and debt sustainability objectives on track.

According to the document, near-term revenue gains are expected to come primarily from stronger tax administration and improved compliance, while longer-term growth in revenue will be supported by carefully sequenced tax policy reforms.