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Personal income tax shock dims economic activities

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ECONOMYNEXTSri Lanka’s personal income tax hikes have hit economic activity in the first quarter though despite currency stability helped businesses cut prices, Hemas Holdings, a top consumer goods group has said.As the currency stabilized, as central bank ended contradictory money and exchange policy conflicts, businesses had cut prices. Mainstream economists generally claim that price falls lead to delayed transactions and try to generate positive inflation through money printing, though businesses believe otherwise.

“The market witnessed price reductions and promotional trade schemes to stimulate consumption,” Hemas Holding told shareholders in the March quarterly statement.

“However, changes made to the personal income tax structure severely impacted modern trade sales volumes as consumers rationalised their purchases under reduced disposable income levels.”

Sri Lanka hiked personal income tax rates in 2023. Value added taxes were raised to 15 percent from 8 percent last year. Another 2.5 percent cascading tax was imposed on top of VAT, the effect of which was estimated to be around 4.5 or more through the cascading effect.

While value added tax allows the government to get tax revenues after citizens make transactions and getting the economy to work, based on best decisions needed to drive the economy to satisfy real needs, income tax kills economic decisions and transfers money to state actors, analysts say.

Net gains on income tax therefore comes at a cost of lost value added tax as well as killed real economic activities which would otherwise have been based on decisions of those who earned the money.

UK also almost doubled VAT in 1979, also to 15 percent, cut the base income tax rate and widened thresholds above inflation to give choice to individuals, amid criticism from Keynesian style or mainstream economists to recover the economy, after two back-to-back IMF programs failed to deliver concrete results, analysts point out.At Hemas Holdings, group revenues went up 52.6 percent to 32 billion rupees in the March 2023 quarter from year earlier amid price inflation as the rupee fell, and cost of sales went up 45.1 percent to 22.2 billion rupees, allowing the group to boost gross profits 72 percent to 9.8 billion rupees, interim accounts showed.

However, administration costs went up 54 percent, selling and distribution costs went up 36 percent, and finance costs went up to 1.3 billion rupees. Profit after tax was flat at 1.06 billion rupees.Sri Lanka’s central bank stabilized the rupee in the second half of 2022 after the rupee collapsed from 200 to 360 to from two years of money printing and also removed a surrender rule in March allowing the exchange rate appreciate.

The US Fed also tightened policy from March 2022 helping bring down global commodity prices after triggering inflation not seen for 40 years through Coronavirus linked money printing or accommodating a real shock through monetary expansion.

“While the modern trade channels witnessed a slow down due to the adverse impact of the tax reforms and high cost of credit on the middle-class urban population, the general trade channels experienced significant growth and increased foot fall,” Hemas told shareholders.

“The decline in global commodity prices in the second half of the year, enabled the business to make price reductions across the portfolio.

“However, the benefit of appreciation of the Sri Lankan Rupee in March 2023 was not seen during the quarter due to the lag effect but is expected to realise in the quarters to come, provided the current economic conditions prevail.”

Hemas is also has operations in Bangladesh where the central bank is also buying up government securities with tenors as long at 20 years to mis-target the interest rate, triggering forex shortages and depreciating the Taka, according to analysts who study the country.

Inflation had hit 9.3 percent in Bangladesh by March.

“In the face of numerous challenges including slowdown in the global economy, depreciation in Taka, heightened inflation and depleting foreign currency reserves, the country entered an IMF programme in January 2023,” the firm said.

“The value-added hair oil market witnessed a degrowth, as consumers curbed consumption in many non-essential items and switched to value-for-money alternatives.”

Mainstream economists mis-target rates to boost growth known as either monetary stimulus or bridging an output gap, though the effort result in instability and economic contractions.



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Highest revenue in 93-year history of Inland Revenue Department collected in 2025

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The Inland Revenue Department has succeeded in collecting Rs. 2,203 billion in revenue in 2025, the highest amount recorded in its 93-year history. This represents a surplus of Rs. 33 billion over the revenue target for the year and a 15 per cent increase compared with the revenue collected in the previous year, stated Commissioner-General of Inland Revenue Ms Rukdevi Fernando.

She made these remarks at a discussion held on Tuesday (30)  morning at the Department’s auditorium under the patronage of President Anura Kumara Dissanayake.

Marking the first occasion in the 93-year history of the Inland Revenue Department that a President has visited the Department, the President attended a meeting with the staff  to review the progress achieved in 2025 and the new plans for 2026.

The President expressed his appreciation to all officers and staff of the Inland Revenue Department for surpassing the revenue expected by the Government and urged everyone to continue working towards a common objective in order to realise the economic transformation required for the country.

Emphasising that no individual is entitled to the privilege of evading taxes, the President stated that the era in which a tax culture prevailed based on personal or political affiliations has come to an end. He further stressed that the law will be enforced without hesitation, irrespective of status, against those who attempt to evade taxes.

The President also pointed out that tax collection is neither repression nor coercion but a legitimate right of the State, adding that necessary changes will be made to laws, regulations, designations and staffing in order to secure this contribution.

He further emphasised that the Government’s objective is to ensure that the benefits of these economic achievements flow to the people of the country. The Government is focusing on improving essential public services to enhance the quality of life, undertaking a new transformation of the transport system and providing adequate allocations for the development of the education and health sectors.

The President also highlighted the need for a targeted programme to properly collect the taxes due to the Government by addressing issues such as improving tax literacy, simplifying the tax system and filling staff shortages.

Ms Rukdevi Fernando stated that the professional competence and dedication of the Department’s officers were the key factors behind this success.

She further noted that a revenue target of Rs. 2,401 billion has been set for 2026 and that the Department expects to achieve this through programmes aimed at enhancing tax compliance and broadening the tax base.

In addition, she said that the Department plans to expand third-party data sharing, strengthen investigations into domestic and overseas assets, take over the RAMIS system, reinforce risk-based auditing, introduce e-invoicing, adopt modern technology for tax administration and enhance tax ethics in 2026.

Minister of Labour and Deputy Minister of Finance and Planning Dr Anil Jayantha Fernando, Deputy Minister of Economic Development Nishantha Jayaweera, Secretary to the President Dr Nandika Sanath Kumanayake, Commissioner-General of Inland Revenue Ms Rukdevi Fernando and senior officials and staff of the Department were present at the occasion.

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Sri Lanka Customs exceeds revenue targets to enters 2026 with a surplus of Rs. 300 billion – Director General

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The year 2025 has been recorded as the highest revenue-earning year in the history of Sri Lanka Customs, stated Director General of Sri Lanka Customs, Mr. S.P. Arukgoda, noting that the Department had surpassed its expected revenue target of Rs. 2,115 billion, enabling it to enter 2026 with an additional surplus of approximately Rs. 300 billion.

The Director General made these remarks at a discussion held on Tuesday  (30)  morning at the Sri Lanka Customs Auditorium, chaired by President Anura Kumara Dissanayake.

The President visited the Sri Lanka Customs Department this to review the performance achieved in 2025 and to scrutinize the new plans proposed for 2026. During the visit, the President engaged in extensive discussions with the Director General, Directors and senior officials of the Department.

Commending the vital role played by Sri Lanka Customs in generating much-needed state revenue and contributing to economic and social stability, the President expressed his appreciation to the entire Customs employees for their commitment and service.

Emphasizing that Sri Lanka Customs is one of the country’s key revenue-generating institutions, the President highlighted the importance of maintaining operations in an efficient, transparent and accountable manner. The President also called upon all officers to work collectively, with renewed plans and strategies, to lead the country towards economic success in 2026.

The President further stressed that the economic collapse in 2022 was largely due to the government’s inability at the time to generate sufficient rupee revenue and secure adequate foreign exchange. He pointed out that the government has successfully restored economic stability by achieving revenue targets, a capability that has also been vital in addressing recent disaster situations.

A comprehensive discussion was also held on the overall performance and progress of Sri Lanka Customs in 2025, as well as the new strategic plans for 2026, with several new ideas and proposals being presented.

Sri Lanka Customs currently operates under four main pillars, revenue collection, trade facilitation, social protection and institutional development. The President inquired into the progress achieved under each of these areas.

It was revealed that the Internal Affairs Unit, established to prevent corruption and promote an ethical institutional culture, is functioning effectively.

The President also sought updates on measures taken to address long-standing allegations related to congestion, delays and corruption in Customs operations, as well as on plans to modernize cargo inspection systems.

The discussion further covered Sri Lanka Customs’ digitalization programme planned for 2026, along with issues related to recruitment, promotions, training and salaries and allowances of the staff.

Highlighting the strategic importance of airports in preventing attempts to create instability within the country, the President underscored the necessity for Sri Lanka Customs to operate with a comprehensive awareness of its duty to uphold the stability of the State, while also being ready to face upcoming challenges.

The discussion was attended by Minister of Labour and Deputy Minister of Finance and Planning, Dr. Anil Jayanta Fernando, Deputy Minister of Economic Development, Nishantha Jayaweera, Secretary to the President, Dr. Nandika Sanath Kumanayake, Deputy Secretary to the Treasury, A.N.Hapugala, Director General of Sri Lanka Customs,  S.P.Arukgoda, members of the Board of Directors and senior officials of the Department.

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Educators slam govt. for ‘unprepared’ education reforms

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Teachers, principals and education professionals have said the government is unprepared to roll out proposed education reforms scheduled to take effect from next week, and warned of nationwide trade union action if the plans are implemented without adequate consultation and preparation.

Addressing a press conference in Colombo, President of the Association of Education Professionals, Ven. Ulapane Sumangala Thera, said Ministry officials had indicated that the reforms would be implemented from Monday, 05 January, but claimed that the vast majority of educators were opposed to the move.

“More than 90 percent of teachers say they have not received proper training on the new syllabus or the proposed reforms,” Ven. Sumangala Thera said. He alleged that the government was attempting to suppress opposition from teachers and principals by declaring school holidays, instead of addressing their concerns.

“If the government continues with these tactics, we will have no option but to resort to trade union action at a national level,” he warned.

Meanwhile, representatives of 16 teachers’ and principals’ unions who visited the Ministry of Education at Isurupaya on Monday to seek clarification on the reforms were turned away by security officials, reportedly on the grounds that prior appointments were required.

Speaking to the media outside the Ministry, Amila Sandaruwan of the Teacher Principals’ Collective said the delegation had attempted to raise their concerns during the Public Day allocated for visitors. “We wanted to know how these reforms are to be implemented and sought to meet the Secretary to the Ministry of Education, but we were barred,” he said.

Sandaruwan accused the Government of proceeding in an “adamant” manner and claimed the reforms were being driven by a handful of non-governmental organisations closely associated with senior ministry officials. “We will not allow this to happen,” he said.

Graded Principals’ Association representative Nimal Mudunkotuwa said widespread confusion prevailed among teachers and school administrators regarding the practical aspects of implementing the reforms. “There is no clarity on school hours—whether schools are to close at 1.30 p.m. as before, or continue until 2.00 p.m. as proposed,” he said.

He added that uncertainty also remained over the number of daily teaching periods, with conflicting statements suggesting either seven or eight periods. “Schools have yet to receive syllabus modules from the Ministry, and many schools lack smart boards and internet connectivity required to implement these reforms,” Mudunkotuwa said.

Ven. Ulapane Sumangala Thera strongly criticised the proposed reforms, describing them as “bastard reforms,” and accused the NPP Government of undermining the education system. He also raised objections to a unit in the proposed Grade Six English syllabus dealing with gay and lesbian relationships, claiming that senior Buddhist prelates, the Catholic Cardinal and other religious leaders had opposed its inclusion.

“The Government refuses to listen even to religious leaders,” he said.

Concerns were also raised at a National Sangha Council meeting held in Colombo on Monday evening at the Colombo Foundation Institute, organised to discuss the objectives of the proposed reforms. Addressing the gathering, Professor Venerable Induragare Dhammaratana Thera said the reforms required extensive discussion, consultation with subject experts and consideration of the experience of senior administrators.

He warned that the proposed changes could trigger the biggest crisis currently facing the country. “Implementing these reforms in this manner will harm future generations and could even destroy the present Government,” he said, likening the process to “forcing a round peg into a square hole.”

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