Features
Sri Lanka’s Tax Conundrum – 2025
The eagerly awaited Performance Report of the Inland Revenue Department (IRD) for 2024 has recently been published. It offers some context regarding the IRD’s tax collections. There is room for wider disclosure that would improve transparency. The timeliness of the report’s release could also be considerably enhanced. After all, most large corporations listed on the Colombo Stock Exchange publish their Annual Reports within two months of the financial year’s end.
Sri Lanka’s fiscal challenges remain pressing, despite the strong headline growth in Inland Revenue Department (IRD) collections for 2024. The performance report shows an impressive 44% increase in collections, reaching Rs. 2.6 trillion compared to Rs. 1.8 trillion in 2023.
However, this growth has been heavily skewed towards indirect taxes, particularly Value Added Tax (VAT), whose collections increased by nearly 89%. The structural imbalance between direct and indirect taxes has widened once again, with the ratio shifting from 50:50 in 2023 to 40:60 in 2024.
While VAT reforms, including higher rates and lower registration thresholds, have expanded collections, income tax performance remains weak. The Rs. 1 trillion collected from income taxes conceals significant inequities: fewer than 1 million individuals out of a workforce of over 8 million are within the tax net, and a very small segment of high-income earners shoulder a disproportionate share of the personal income tax burden. This situation is both socially and economically unsustainable.
Recent reports, including the World Bank’s Public Finance Review and commentary from international experts such as Professor Mick Moore, highlight systemic weaknesses in Sri Lanka’s tax administration. Outdated methods, inadequate human resource planning, and governance failures at the IRD undermine enforcement and modernization. Structural reforms, particularly digitization, improved compliance enforcement, and the recruitment of skilled professionals, are essential to move away from reliance on regressive indirect taxation.
Revenue Performance: Headline Gains but Fragile Foundations
The IRD’s collection of Rs. 2.6 trillion in 2024 is unprecedented in nominal terms. VAT alone contributed an additional Rs. 615 billion, nearly doubling year-on-year. This sharp increase is attributable to two main factors: the rate hike, which saw VAT increase to 18% from 15%. – Wider base: The registration threshold was reduced from Rs. 80 million to Rs. 60 million annually, pushing the number of VAT-registered establishments to 21,227—a 53% increase.
However, reliance on VAT has shifted the tax mix towards indirect taxes. The direct-to-indirect ratio dropped back to 40:60, weakening equity. Indirect taxes, by their nature, impact lower-income households more heavily, increasing inequality.
In contrast, income tax collections reached Rs. 1 trillion in 2024—a modest 13% increase from the previous year. Given the urgent need to expand the tax base, this figure highlights the limited success of enforcement and compliance efforts.
Who Pays Income Tax?
Income tax collections reveal the narrowness and inequities of Sri Lanka’s direct tax base:
– Corporate income tax, Rs. 582 billion, from 100,049 companies. The collection represents an increase of 5% over 2023.
– Personal and partnership income tax: Rs. 442 billion from 976,498 individuals and 16,227 partnerships. The collection represents an increase of 26% over 2023.
In the year 456,035 new taxpayers were added to the tax base (mostly individuals). However, the report fails to disclose how much additional revenue these new taxpayers contributed. Such disclosure would improve transparency and might also help dispel the feeling that the IRD is squeezing the same lemon!
Similarly, revealing how many of the registered companies actually pay income tax would promote greater transparency.
The Rs. 442 billion collected as personal income tax has been broken down as follows:
Advance Personal Income Tax (APIT) – private sector employees: Rs. 198 billion.
Advance Income Tax on bank interest payments: Rs. 66 billion.
Advance Income Tax from specified fees and others: Rs. 98 billion.
The APIT collection from private sector employees increased by Rs. 53 billion in 2023, representing a 36% rise. There is a shortfall of Rs. 81 billion in Non-Corporate Income Tax that I could not find in the report.
Private Sector Advance Personal Income Tax Data
A new table in the performance report sheds light on who pays income tax through Advance Personal Income Tax (APIT):
This table highlights three key issues: – Even in the formal private sector, 77% of employees pay no income tax as their earnings fall below the income tax-free threshold. – A very small group (61,293 individuals) accounts for over three-quarters of APIT paid.
With the 2025 increase in the tax-free threshold to Rs. 1.8 million, around 275,000 employees will exit the tax net, further narrowing the base.
Tax Return Compliance
It is compulsory for those liable to income tax to submit a tax return by 30th November following the end of the tax year, detailing their income for the year, as well as assets owned, and liabilities owed. According to the IRD, very few companies and individuals submit their returns on time.
Only the large Corporate Taxpayers, numbering 621, achieved a 93% compliance rate. Of the remaining 91,183 companies, only 26,241 submitted their returns on time, which corresponds to a compliance rate of 29%.
The compliance rate among individual taxpayers is also very poor, with only 110,240 out of 792,530 submitting their returns on time, resulting in a compliance rate of just 24%.
Failing to submit tax returns on time does not necessarily mean taxpayers are evading taxes, but assuming so is reasonable.
World Bank’s Public Finance Review 2025
The World Bank’s Report Towards a Balanced Fiscal Adjustment highlights the fragility of Sri Lanka’s revenue model: – 75% of revenue gains since 2022 came from indirect taxes (VAT, SSCL, excise duties). – Regressive impact: VAT consumes 5.3% of pre-fiscal income for the poorest decile, compared to 3.3% for the richest. – Poverty impact: The 2024 VAT hike alone increased poverty by 2.2 percentage points. – Sustainability concerns: Reliance on indirect taxation is not only socially unjust but also economically unsustainable.
The report calls for digitization and comprehensive reform of the IRD, emphasizing the need for better sequencing, resourcing, and HR capability development. It also warns against the “easy option” of squeezing a narrow taxpayer base, urging policymakers to prioritize compliance enforcement and structural reforms.
Professor Moore’s Perspective: 20 Years Behind many African Countries
Professor Mick Moore, a leading political economist on taxation, argues that Sri Lanka’s IRD is as outdated as its Customs Department—lagging 20 years behind even many African peers. He highlights systemic failures: – Low compliance: e.g., only 20,000 of 110,000 businesses in Colombo pay local property tax. – Outdated practices: reliance on manual processes and weak data integration. – Poor HR systems: lack of skilled recruits, minimal training, and outdated promotion practices.
Moore stresses that enforcement should target large businesses and high-value taxpayers, rather than informal operators. He says that without skilled staff, modern audits, and investment in IT/data analytics, Sri Lanka cannot close its revenue gap.
Human Resource and Institutional Challenges
The IRD’s own performance report presents a grim view of institutional capacity: – Approved cadre: 1,639 officers. – Vacancies: 227 (14%). – Ageing workforce: 33% of staff are aged 51–60, with most serving over 15 years. – Promotion bottlenecks: Dozens of senior positions remain in “acting” status due to Public Service Commission delays, causing staff dissatisfaction and demotivation.
Compounding the problem, earlier officer-level recruitment was halted by trade union pressure, resulting in the discontinuation of the Tax Officer and Assessor posts. New recruits are now directly appointed as Assistant or Deputy Commissioners, roles that were previously reserved for experienced officers. This undermines institutional knowledge and succession planning. I understand that between 2007 and 2017, there was no recruitment to the officer cadre.
The lack of skilled professionals in IT, data science, and financial analysis has left the IRD unprepared for digitisation and modern enforcement.
Policy Implications and Reform Agenda
Sri Lanka cannot rely solely on rate hikes and regressive indirect taxes to fund its budget. The IRD’s weaknesses demand urgent reform. Some of the key initiatives identified by agencies and experts include:
· Digitisation and Data Integration
· Build a modern, unified tax administration platform integrating VAT, income, excise, and customs data.
· Use third-party data (banks, utilities, property registries, travel agents) to cross-check declarations and expand the net.
· Broadening the Tax Base
· Enforce compliance among high-income professionals and self-employed groups who are currently under-reporting.
· Strengthen property taxation, aligning municipal and IRD databases.
· Human Resource Overhaul
· Recruit IT specialists, data analysts, and forensic accountants.
· Reform promotions to be performance-based rather than seniority-based.
· Resolve acting appointments to restore morale and accountability.
· Targeted Enforcement
· Prioritize audits on large businesses, high-net-worth individuals, and multinational corporations.
· Avoid excessive focus on small informal operators, who contribute little revenue but face disproportionate harassment.
· Institutional Independence and Governance
· Strengthen the autonomy of the IRD to shield it from political interference.
· Ensure stable leadership and merit-based recruitment.
Conclusion
The 2024 IRD performance report highlights both achievements and vulnerabilities. The revenue increase of Rs. 800 billion over 2023 is genuine but relies heavily on regressive VAT hikes, rather than on structural reforms or a broader tax base. Income tax remains underdeveloped, with fewer than 12% of the workforce contributing directly. The result is a narrow and inequitable system that discourages compliance, undermines social fairness, and hampers long-term growth.
The World Bank and experts like Professor Moore deliver a clear warning: Sri Lanka’s tax administration is outdated, under-skilled, and politically ignored. Without urgent reforms—such as digitization, enforcement of compliance, HR renewal, and governance restructuring—the state will keep squeezing a small pool of taxpayers while leaving most outside the net.
Previous governments’ failure to strengthen the IRD has cost the country dearly in lost revenue and fiscal instability. The task now is to develop and implement reforms that are both technically sound and politically viable. A better tax system is crucial for building public trust, reducing inequality, and boosting Sri Lanka’s economy.
By Sanjeewa Jayaweera ✍️
Features
Mannar’s silent skies: Migratory Flamingos fall victim to power lines amid Wind Farm dispute
By Ifham Nizam
A fresh wave of concern has gripped conservationists following the reported deaths of migratory flamingos within the Vankalai Sanctuary—a globally recognised bird habitat—raising urgent questions about the ecological cost of large-scale renewable energy projects in the region.
The incident comes at a time when a fundamental rights petition, challenging the proposed wind power project, linked to India’s Adani Group, remains under examination before the Supreme Court, with environmental groups warning that the very risks they highlighted are now materialising.
At least two flamingos—believed to be part of the iconic migratory flocks that travel thousands of kilometres to reach Sri Lanka—were found dead after entanglement with high-tension transmission lines running across the sanctuary. Another bird was reportedly struggling for survival.
Professor Sampath Seneviratne, a leading ornithologist, expressed deep concern over the development, noting that such incidents are not isolated but indicative of a broader and predictable threat.
“These migratory birds depend on specific flyways that have remained unchanged for centuries. When high-risk infrastructure, like poorly planned power lines, intersect these routes, collisions become inevitable,” he said. “What we are witnessing now could be just the beginning if proper mitigation measures are not urgently implemented.”
Environmentalists argue that the Mannar region—particularly the Vankalai wetland complex—is one of the most critical stopover sites in South Asia for migratory waterbirds, including flamingos, pelicans, and various species of waders. The sanctuary’s ecological value has also supported a niche with growing eco-tourism sector, drawing birdwatchers from around the world.
Executive Director of the Centre for Environmental Justice, Dilena Pathragoda, said the incident underscores the urgency of judicial intervention and stricter environmental oversight.
“This tragedy is a direct consequence of ignoring scientifically established environmental safeguards. We have already raised these concerns before court, particularly regarding the location of transmission infrastructure within sensitive bird habitats,” Pathragoda said.
“Renewable energy cannot be pursued in isolation from ecological responsibility. If due process and proper environmental impact assessments are bypassed or diluted, then such losses are inevitable.”
Conservation groups have long cautioned that the installation of wind turbines and associated grid infrastructure—especially overhead transmission lines—within or near sensitive habitats could transform these landscapes into lethal zones for avifauna.
An environmental activist involved in the ongoing legal challenge said the latest deaths validate earlier warnings.
“This is exactly what we feared. Development is necessary, but not at the cost of biodiversity. When projects of this scale proceed without adequate ecological assessments and safeguards, the consequences are irreversible,” the activist stressed.
The debate has once again brought into focus the delicate balance between renewable energy expansion and biodiversity conservation. While wind energy is widely promoted as a clean alternative to fossil fuels, experts caution that “green” does not automatically mean “harmless.”
Professor Seneviratne emphasised that solutions do exist, including rerouting transmission lines, installing bird diverters, and conducting comprehensive migratory pathway studies prior to project approval.
“Globally, there are well-established mitigation strategies. The issue here is not the absence of knowledge, but the failure to apply it effectively,” he noted.
The timing of the incident is particularly worrying. Migratory flamingos typically remain in Sri Lanka until late April or May before embarking on their return journeys. Conservationists warn that if hazards remain unaddressed, larger flocks could face similar risks in the coming weeks.
Beyond ecological implications, experts also highlight potential economic fallout. Wildlife tourism—especially birdwatching—contributes significantly to local livelihoods in Mannar.
Repeated reports of bird deaths could deter eco-conscious travellers and damage the region’s reputation as a safe haven for migratory species.
Environmentalists are now calling for immediate intervention by authorities, including a temporary halt to high-risk operations in sensitive zones, pending a thorough environmental review.
They stress that protecting animal movement corridors—whether elephant migration routes or avian flyways—is a fundamental pillar of modern conservation.
As the controversy unfolds, one question looms large: can Sri Lanka pursue sustainable energy without sacrificing the very natural heritage that defines it?
Pathragoda added that for now, the sight of fallen flamingos in Mannar stands as a stark reminder that development, if not carefully planned, can carry a heavy and irreversible cost.
Features
‘Weaponizing’ religion in the pursuit of power
A picture of US President Donald Trump apparently being prayed for by supporters, appearing in sections of the international media, said it all loud and clear. That is, religion is being flagrantly leveraged or prostituted by politicians single-mindedly bent on furthering their power aspirations.
Although in the case of the US President the trend took on may be an exceptionally graphic or dramatic form, the ‘weaponizing’ of religion is nothing particularly new, nor is it confined to only religiously conservative sections of the West. For example, in South Asia it is an integral part of politics. The ‘South Asian Eight’ are notorious for it and it could be unreservedly stated that in Sri Lanka, the latter’s ethnic conflict would be more amenable to resolution if religion was not made a potent weapon by ambitious politicians of particularly the country’s South.
The more enlightened sections of Christian believers in the US may not have been able to contain their consternation at the sight of the US President apparently being ‘blessed’ by pastors claiming adherence to Christianity. Any human is entitled to be blessed but not if he is leading his country to war without exhausting all the options at his disposal to end the relevant conflict by peaceful means.
More compounded would be his problem if his directives lead to the death of civilians in the hundreds. In the latter case he is stringently accountable for the spilling of civilian blood, that is, the committing of war crimes.
However, the US along with Israel did just that in the recent bombings of Iran, for instance. The majority of the lives lost were those of civilians. If the US President is endowed with a Christian conscience he would have paused to consider that he is guilty of ordering the taking of the life of another human which is forbidden in the teachings of Jesus Christ.
Moreover, the ‘pastors’ praying over the US President should have thought on the above lines as well. May be they were in an effort to curry the President’s favour which is as blame-worthy as legitimizing in some form the taking of civilian lives. Apparently, the realisation is not dawning on all Christian conservatives of the US that some of these ‘pastors’ could very well be the proverbial false prophets and the latter are almost everywhere, even in far distant Sri Lanka.
However, the political reality ‘on the ground’ is that the Christian Right is a stable support base of the Republican Right in the US. Considering this it should not come as a surprise to the seasoned political watcher if the Christian Right, read Christian fundamentalists, are hand-in-glove, so to speak, with President Trump. But it is a scathing indictment on these rightist sections that they are all for perpetrating war and destruction and not for the fostering of peace and reconciliation. Ideally, they should have impressed on their President the dire need to make peace.
That said, political commentators should consider it incumbent on themselves to point out that religion is being ‘weaponized’ in Iran as well. Theocratic rule in Iran has been essentially all about perpetuating the power of the clerical class. The reasons that led to the Islamic Revolution in Iran are complex and the indiscreet Westernization of Iran under the Shah dynasty is one of these but one would have expected Iran to develop from then on into a multi-party, pluralistic democratic state where people would be enjoying their fundamental rights, as enshrined in the Universal Declaration of Human Rights, for example.
Moreover, Iran should have taken it upon itself to be a champion of world peace, in keeping with its Islamic credentials. But some past regimes in Iran had vowed to virtually bomb Israel out of existence and such regional policy trajectories could only bring perpetual conflict and war. Considering the current state of the Middle East it could be said that the unfettered playing out of these animosities is leading the region and the world to ‘reap the whirlwind’, having recklessly ‘sowed the wind’.
However, religious fundamentalism-inspired conflict and war has spread well beyond the Middle East into almost every region since 1979, the year of the Islamic Revolution in Iran. So much so, knowledgeable opinion now points out that religious identity has come to replace nationalism as a principal shaper of international politics or “geopolitics”, as quite a few sections misleadingly and incorrectly term it.
Elaborating on the decisive influence of religious identity, the well known and far traveled Western journalist Patrick Cockburn says in his authoritative and comprehensive book titled, ‘The Age of Jihad – Islamic State and the Great War for the Middle East’ at page 428 in connection with the war in Chechnya ; ‘If nationalism was not entirely dead, it no longer provided the ideological glue necessary to hold together and motivate people who were fighting a war. Unlike the Islamic faith, it was no longer a belief or a badge of identity for which people would fight very hard.’ (The book in reference was published by VERSO, London and New York).
In his wide coverage of Jihadist Wars the world over Cockburn goes on to state that today a call from a cleric could motivate his followers to lay down no less than their lives for a cause championed by the former. The 9/11 catastrophe alone should convince the observer that this is indeed true.
However, as often pointed out in this column, there is no alternative but to foster peace and reconciliation if a world free of bloodshed and strife is what is being sought. Fortunately we are not short of illustrious persons from the East and West who have shone a light on how best to get to a degree of peace. Besides Mahatma Gandhi of India, who was the subject of this column last week, we have former President of Iran Mohammad Khatami, who made a case for a ‘Dialogue of Civilizations’ rather than a ‘Clash of Civilizations’.
The time is more than ripe to take a leaf from these illustrious personalities, for, the current state of war in the Middle East has raised the possibility of a war that could transcend regional boundaries. The antagonists are obliged to exhaust all the peaceful options with the assistance of the UN system. Besides, war cannot ever have the blessings of the sane.
Features
Venerable Rahula Thera’s 35-year green mission and national Namal Uyana
It was 35 years ago, on March 28, 1991, that Venerable Rahula Thera, then a young monk, embarked on a journey to the Na forest in Ulpathagama, Palagama, in the Anuradhapura District. Today, three and a half decades later, this mission stands as living proof of the enduring bond between Buddhist philosophy and the natural world.
Marking the 35th year of this green mission, Rahula Thera’s relentless dedication has transformed the National Namal Uyana into an environmental landmark admired not only across Sri Lanka but around the globe, as well.
When studying the life of Venerable Rahula Thera, one cannot ignore the profound connection between Buddhism and the environment. Buddhism is a philosophy deeply attuned to nature. The historical use of the sacred “Na Ruka” by all four Buddhas: Mangala Buddha, Sumana Buddha, Revata Buddha, and Sobhita Buddha — for enlightenment —demonstrates that from time immemorial, Buddhism has maintained a sacred bond with the Na tree. From the birth of Siddhartha to his enlightenment, the propagation of the Dharma, and even the great Parinirvana, all of these milestones unfolded in verdant, living landscapes.
Venerable Rahula Thera did not embark on the Namal Uyana mission seeking government support or personal gain. His commitment sprang from a deep devotion to the Buddha’s teachings on grove cultivation. A grove cultivator is one who spreads compassion for nature. As the Vanaropa Sutta teaches:
Venerable Rahula Thera reclaimed Namal Uyana which was then under the control of timber smugglers and treasure hunters. The term “Wanawasi” does not merely mean living in a forest; it signifies finding rest and enlightenment through nature, free from the destructive roots of greed, sin, and delusion.
Another defining aspect of Venerable Rahula Thera’s 35-year mission is the purification of the human mind. He has consistently taught the thousands who visit Namal Uyana that a person who loves a tree will never harm another human being. As the Dhamma proclaims:
It is important to remember that Venerable Rahula Thera devoted his life, without fear, speaking the truth and taking necessary action, tirelessly advancing the national mission he began. From 1991 to the present, he has worked with every government elected by the people, maintaining impartiality and independence from political ideology. Yet, he never hesitated to raise his voice fearlessly against any individual, of any rank or party, who committed wrongdoing.
Religious and Social Mission
The National Namal Uyana is not merely a forest; it is a magnificent heritage site, dating back to ancient times. Scattered across the landscape are boundary walls, the remains of ancient monastery complexes, and stone carvings believed to date back to the reign of King Devanampiyatissa. In earlier centuries, this sacred land had served as a meditation sanctuary for hundreds of monks. The name “National Namal Uyana,” by which this ecological and archaeological treasure is known today, was introduced by Venerable Rahula Thera in 1991. The government’s later recognition of the site as the National Namal Uyana stands as a significant achievement for both religion and national heritage.
Venerable Rahula Thera is a monk who has lived a life of renunciation. A striking example of this is his decision not to assume the position of Chief Incumbent of the National Namal Uyana Viharaya, instead entrusting the temple to the Ramanna Nikaya and its trustees. In doing so, he set a precedent for the contemporary Sangha. The Thera himself stated that he was merely the trustee of Namal Uyana, not its owner.
Legacy and Continuing Inspiration
The 35th anniversary of Venerable Wanawasi Rahula Thera’s arrival at Namal Uyana is not merely the commemoration of a period of time; it is a message of nature to future generations. Through his work, the Thera revived the ancient Hela tradition of loving trees and venerating the environment as something sacred. This religious and environmental mission remains unforgettable.
The revival experienced by Namal Uyana, after the arrival of Venerable Wanawasi Rahula Thera, is beyond simple description. Some of the major accomplishments achieved under his leadership include:
* Securing and protecting the largest Rose Quartz (Rosa Thirivana) reserve in South Asia.
* Restoring the Na forest spread across hundreds of acres, providing shelter to numerous rare plants and animal species.
* Transforming the area into a living centre for environmental education, offering practical learning experiences for thousands of schoolchildren and university students.
* Drawing the attention of world leaders and international environmentalists to Sri Lanka’s unique environmental heritage.
In recognition of his immense contribution to environmental conservation, Venerable Rahula Thera was honoured with the Presidential Environment Award and the Green Award in 2004—a significant moment in his life. Yet the Thera himself has always remained devoted to the work rather than the recognition it brings, making such appreciation even more meaningful.
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