Implementation seen as key to Budget 2025’s success

By Ifham Nizam

Despite the 2025 budget’s optimistic outlook, implementation remains the key to its success, warned Nandika Buddhipala, Chief Financial Officer of Commercial Bank PLC.

Speaking at a post budget seminar on Wednesday organized by the National Chamber of Commerce of Sri Lanka, Buddhipala stressed that while tax reforms and fiscal discipline are necessary, businesses will need clarity on regulatory frameworks—especially concerning VAT changes, investment incentives and trade policies.

In response to a question posed by The Island Financial Review, he added: “Budget 2025 sets the foundation for growth, but execution will be the true test. If we can manage debt effectively, encourage exports and attract investors, we can create a resilient economy.”

Buddhipala added: “We appreciate the government’s efforts in aligning the budget with the Public Finance Management Act and the IMF Debt Sustainability Framework. However, it is critical that we remain aware of the persistent debt servicing and interest cost burden.

“Sri Lanka’s high borrowing costs mean that interest payments remain a significant portion of government expenditure. Policymakers should adopt concrete plans for reducing this burden while ensuring economic stability.

“We must create an environment that fosters exports and attracts FDI. The emphasis should be on trade-oriented sectors rather than industries that do not contribute to foreign exchange earnings.

“The government’s aims to strengthen ties with ASEAN nations through participation in the Regional Comprehensive Economic Partnership (RCEP), is a move that could boost trade and investment opportunities.

“We need to expand Double Taxation Agreements (DTAs) beyond the current 46 countries. This would increase investor confidence and facilitate smoother trade flows.

“The proposed Development Bank, which seeks to provide financial support for SMEs and new entrepreneurs, is a positive step but access to finance must be streamlined.

“Providing tailored financial solutions for SMEs is essential. However, ensuring that the Development Bank is efficiently integrated into the existing banking system will determine its success.

“This budget is a strategic response to economic challenges. We need to strike a balance between private sector-driven growth and state intervention to ensure stability and equitable distribution of wealth.”

Meanwhile an official explained in response to another query raised by this newspaper: “The first reading of the budget, which will be followed by a month-long discussion in a budget-related forum, aims to clarify ambiguities and refine implementation strategies. There are a lot of concerns regarding implementation, but this one-month period allows us to fine-tune certain aspects.”

A senior Finance Ministry representative added the following: “We have to consider international expectations and commitments, especially in the context of the International Monetary Fund (IMF) agreements. The recent IMF release of USD 330 million following policy adjustments shows the importance of staying within global economic expectations.

Hasitha Radella of KPMG Sri Lanka, presenting an overview of tax reforms said that as Sri Lanka continues its recovery, the budget is focused on several taxation reforms. Sustained improvements in fiscal management will be key to maintaining growth momentum for the country.

“Clarifications on the Simplified Value Added Tax (SVAT) system and the transition from SVAT to a Risk-Based Refund System that will streamline the VAT refund process to an efficient process are urgent requirements, said Ms. Iyesha Asanthi, Commissioner, Tax Policy & legislation of the Inland Revenue Department.

She said that if any eligible exporter who exports more than 50 percent of total supplies requires VAT refunds under the new risk-based refund system, such a need could be included in a relevant pilot project.

She added that the current VAT threshold is Rs. 15 million per quarter and Rs. 60 million per year at the standard rate 18%. Due to the current situation in the country, the budget proposals of 2025 do not include tax exemptions or concessions. However, the budget proposals made to amend individuals’ tax rates by increasing tax relief from Rs 1.2 million to 1.8 million and the relaxing of tax brackets could benefit individuals, including employees.

Ms. Jayani Wickrama Arachchi, Director, Fiscal Policy Department of Ministry of Finance, Planning and Economic Development said that with the fiscal space being highly constrained, every policy move must be strategic, ensuring key fiscal targets are protected while safeguarding economic stability in the medium term. Interest payments remain a significant burden, accounting for substantial government recurrent expenditure, primarily due to Sri Lanka’s high borrowing costs.

She added: “We need to move ahead despite these challenges.”