Features
Budget, Taxation Turmoil and Policy Blunders – Part II
Last week, we delved into a significant event in New Zealand, where a group of affluent individuals expressed a willingness to voluntarily pay more taxes, only to have the tax authority reject their offer. This incident prompts questions about the fairness of the current tax system, particularly in relation to the lower tax rates paid by the wealthiest citizens. Drawing parallels with Sri Lanka, the discussion advocates for the implementation of mandatory Tax Identification Numbers (TINs) in developing economies, underlining the necessity for a more equitable tax system.
We observed a unique situation in Sri Lanka where, despite per capita GDP growth, the tax-to-GDP ratio has been on a decline. The introduction of some naïve tax policies, such as the abolition of mandatory PAYE Tax, the increase in tax and VAT allowances, in 2019/2020, were also discussed.
The projection for Sri Lanka’s tax revenue as a percentage of GDP is expected to rise from 7.3% in 2022 to 12.1% in 2024, with the World Bank emphasizing the importance of maintaining tax revenues above 15% of GDP for economic growth. Projections for Sri Lanka’s GDP per Capita indicate a gradual increase over the next few years, reaching around US$4098.00 in 2025.

Sri Lanka compared
According to a map available on the Internet, depicting global comparison of Tax-to-GDP ratio, Sri Lanka is bracketed with several economically challenged African nations as well as Afghanistan and Bangladesh within its region. Notably, it ranks lower than many neighbouring countries including India, Nepal, Bhutan, Pakistan, and Indonesia etc.
On the contrary, countries with higher income levels, such as US, UK, Australia and any European countries, demonstrate considerably elevated tax-to-GDP ratios, ranging from 20% to 30%, and, in some cases such as UK France, the Netherlands, New Zealand and Denmark, reaching as high as 40% to 45%.
Figure 1 plots countries based on their GDP per capita and tax revenue as a percentage of GDP. Countries with income levels like Sri Lanka (ranging between US $2,000-4,000) are highlighted within the circle. Sri Lanka’s tax-to-GDP ratio falls significantly below the average. For instance, Morocco and Georgia, with GDP per capita figures of US $2,931 and US $3,529, respectively—comparable to Sri Lanka’s GDP per capita of US $3,369—both countries collect 24 percent of GDP as tax revenue, whereas Sri Lanka collects only 11 percent.
The tax revenue as a percentage of GDP for middle-income countries has shown a relatively stable trend over the years. The values range from around 10.7% in 2005 to an expected 11.4% in 2024 (Forecast).
Sri Lanka’s tax revenue as a percentage of GDP has experienced fluctuations during the period. Notable peaks are observed in 2006, 2007, and reaching up to 14.6% in 2015 and was par with the Middle-Income countries, followed by a decline again from 2019. The values have varied, with a dip to 7.8% in 2021, indicating a substantial decrease. Projections for 2022 and 2023 show a gradual increase, with the budget for 2024 aiming at a significant rise to 12.1%. (See Figure 2).

Hence, the tax revenue for Sri Lanka, while exhibiting fluctuations, generally appears to be on a recovery path after a notable decline in recent years. The budgeted figure for 2024 suggests an ambitious target, aiming for a substantial increase in tax revenue as a percentage of GDP.
Not only arbitrage but
also corruption
In countries like the United States, income tax stands out as the primary revenue source. This is facilitated by nearly zero import duties, typically set at 5 percent or less, and the absence of a value-added tax (VAT). In contrast, Europe relies heavily on a value-added tax, often around 20 percent, but does not impose import duties. In Sri Lanka, despite the relatively high import duties borne by the average citizen, the government only receives a fraction of this revenue. This is a result of the diversion of substantial sums to domestic protectionists through the practice of tax arbitrage, coupled with instances of tax avoidance (commonly referred to as tax minimization) and evasion, often involving manipulations and collusion.
Tax arbitrage involves exploiting differences in tax policies or rates across different jurisdictions to gain a financial advantage. In the context of domestic protectionists, individuals or entities within a country capitalize on tax differences among regions. This strategy often involves the strategic use of tax regulations or loopholes to minimize or entirely avoid tax liability. Notably, corruption plays a crucial role in this dynamic. Given the prevalent culture of corruption, extending from the top echelons of the state to even lower-level positions in Sri Lanka, these tactics can be readily implemented by astute business individuals, both on a large and small scale.
Not only anomaly but
also corruption
A noteworthy aberration in Sri Lanka’s tax structure is its disproportionate reliance on taxes related to international trade for tax revenue in comparison to its income level. Global patterns indicate that the proportion of taxes on imports as a share of total tax revenue tends to decrease as income levels rise. For instance, a study by Loewy, titled ‘Taxation: 21st Century Issues and Challenges’, revealed that trade taxes contribute to approximately 25% of total tax revenue in low-income countries, 12% in lower-middle-income countries, 9% in upper-middle-income countries, and less than one percent in high-income countries.
Contrary to these trends, in Sri Lanka’s case, taxes imposed solely on imports constitute nearly 20% of the government’s total tax revenue—a significantly high figure for a lower-middle-income country (Figure 3). The country’s substantial reliance on international trade for tax income has proven to be a risky proposition for the government. While restricting imports is essential to address the trade deficit, it comes at the cost of reduced government revenue and an exacerbated budget deficit. Conversely, increasing imports would boost government revenue but intensify the trade deficit. Consequently, a strategic shift away from trade-related taxes becomes crucial for the government to generate revenue without destabilizing the country’s macroeconomic environment.

Share of expenses on government servants
Government spending in Sri Lanka was 48% in 2019 to public sector salaries and pensions but now only 44% allocated for 2024 as mentioned before. In the most recent budget presentation, over 35% of government expenditure was directed towards public sector salaries, pensions, and public welfare, emphasising their importance in government spending. In a specific breakdown, it is mentioned that Rs. 92 billion was allocated to pay the salaries of public sector employees in July 2022. Moreover, a historical perspective indicates the significance of government spending on salaries, dating back to 1950. Overall, public sector salaries and pensions play a crucial role in Sri Lanka’s government expenditure, reflecting a substantial commitment to the welfare of government employees.
Another anomaly is too many armed forces
Sri Lanka’s armed forces strength of 317,000 personnel is financially unsustainable because of its considerable annual expenditure of Rs.423 billion (410 in 2023), which is 1.88% of the GDP. Comparisons with other nations, including Australia and the Netherlands, reveal significantly smaller military forces. Sri Lanka’s post-civil war armed forces maintenance highlights the country’s unique revenue-based fiscal consolidation strategy, focusing on tax increases without traditional cost-cutting measures.
Conclusions
This analysis reveals three main anomalies in Sri Lanka’s tax structure, including a decline in taxpayers after significant tax cuts. The essay emphasizes the importance of sustaining tax revenues for economic growth and explores the country’s tax-to-GDP ratio, positioning it against global comparisons (over 15% of GDP). Notably, it highlights the overdependence on international trade taxes, the disproportionate spending on government servants, and the financial challenges posed by the substantial size and expenditure on the armed forces. The narrative suggests a need for strategic reforms to navigate the intricate fiscal landscape.
(The writer, a senior Chartered Accountant and professional banker, is Professor at SLIIT University, Malabe. He is also the author of the “Doing Social Research and Publishing Results”, a Springer publication (Singapore), and “Samaja Gaveshakaya (in Sinhala). The views and opinions expressed in this article are solely those of the author and do not necessarily reflect the official policy or position of the institution he works for.)
Features
Misinterpreting President Dissanayake on National Reconciliation
President Anura Kumara Dissanayake has been investing his political capital in going to the public to explain some of the most politically sensitive and controversial issues. At a time when easier political choices are available, the president is choosing the harder path of confronting ethnic suspicion and communal fears. There are three issues in particular on which the president’s words have generated strong reactions. These are first with regard to Buddhist pilgrims going to the north of the country with nationalist motivations. Second is the controversy relating to the expansion of the Tissa Raja Maha Viharaya, a recently constructed Buddhist temple in Kankesanturai which has become a flashpoint between local Tamil residents and Sinhala nationalist groups. Third is the decision not to give the war victory a central place in the Independence Day celebrations.
Even in the opposition, when his party held only three seats in parliament, Anura Kumara Dissanayake took his role as a public educator seriously. He used to deliver lengthy, well researched and easily digestible speeches in parliament. He continues this practice as president. It can be seen that his statements are primarily meant to elevate the thinking of the people and not to win votes the easy way. The easy way to win votes whether in Sri Lanka or elsewhere in the world is to rouse nationalist and racist sentiments and ride that wave. Sri Lanka’s post independence political history shows that narrow ethnic mobilisation has often produced short term electoral gains but long term national damage.
Sections of the opposition and segments of the general public have been critical of the president for taking these positions. They have claimed that the president is taking these positions in order to obtain more Tamil votes or to appease minority communities. The same may be said in reverse of those others who take contrary positions that they seek the Sinhala votes. These political actors who thrive on nationalist mobilisation have attempted to portray the president’s statements as an abandonment of the majority community. The president’s actions need to be understood within the larger framework of national reconciliation and long term national stability.
Reconciler’s Duty
When the president referred to Buddhist pilgrims from the south going to the north, he was not speaking about pilgrims visiting long established Buddhist heritage sites such as Nagadeepa or Kandarodai. His remarks were directed at a specific and highly contentious development, the recently built Buddhist temple in Kankesanturai and those built elsewhere in the recent past in the north and east. The temple in Kankesanturai did not emerge from the religious needs of a local Buddhist community as there is none in that area. It has been constructed on land that was formerly owned and used by Tamil civilians and which came under military occupation as a high security zone. What has made the issue of the temple particularly controversial is that it was established with the support of the security forces.
The controversy has deepened because the temple authorities have sought to expand the site from approximately one acre to nearly fourteen acres on the basis that there was a historic Buddhist temple in that area up to the colonial period. However, the Tamil residents of the area fear that expansion would further displace surrounding residents and consolidate a permanent Buddhist religious presence in the present period in an area where the local population is overwhelmingly Hindu. For many Tamils in Kankesanturai, the issue is not Buddhism as a religion but the use of religion as a vehicle for territorial assertion and demographic changes in a region that bore the brunt of the war. Likewise, there are other parts of the north and east where other temples or places of worship have been established by the military personnel in their camps during their war-time occupation and questions arise regarding the future when these camps are finally closed.
There are those who have actively organised large scale pilgrimages from the south to make the Tissa temple another important religious site. These pilgrimages are framed publicly as acts of devotion but are widely perceived locally as demonstrations of dominance. Each such visit heightens tension, provokes protest by Tamil residents, and risks confrontation. For communities that experienced mass displacement, military occupation and land loss, the symbolism of a state backed religious structure on contested land with the backing of the security forces is impossible to separate from memories of war and destruction. A president committed to reconciliation cannot remain silent in the face of such provocations, however uncomfortable it may be to challenge sections of the majority community.
High-minded leadership
The controversy regarding the president’s Independence Day speech has also generated strong debate. In that speech the president did not refer to the military victory over the LTTE and also did not use the term “war heroes” to describe soldiers. For many Sinhala nationalist groups, the absence of these references was seen as an attempt to diminish the sacrifices of the armed forces. The reality is that Independence Day means very different things to different communities. In the north and east the same day is marked by protest events and mourning and as a “Black Day”, symbolising the consolidation of a state they continue to experience as excluding them and not empathizing with the full extent of their losses.
By way of contrast, the president’s objective was to ensure that Independence Day could be observed as a day that belonged to all communities in the country. It is not correct to assume that the president takes these positions in order to appease minorities or secure electoral advantage. The president is only one year into his term and does not need to take politically risky positions for short term electoral gains. Indeed, the positions he has taken involve confronting powerful nationalist political forces that can mobilise significant opposition. He risks losing majority support for his statements. This itself indicates that the motivation is not electoral calculation.
President Dissanayake has recognized that Sri Lanka’s long term political stability and economic recovery depend on building trust among communities that once peacefully coexisted and then lived through decades of war. Political leadership is ultimately tested by the willingness to say what is necessary rather than what is politically expedient. The president’s recent interventions demonstrate rare national leadership and constitute an attempt to shift public discourse away from ethnic triumphalism and toward a more inclusive conception of nationhood. Reconciliation cannot take root if national ceremonies reinforce the perception of victory for one community and defeat for another especially in an internal conflict.
BY Jehan Perera
Features
Recovery of LTTE weapons
I have read a newspaper report that the Special Task Force of Sri Lanka Police, with help of Military Intelligence, recovered three buried yet well-preserved 84mm Carl Gustaf recoilless rocket launchers used by the LTTE, in the Kudumbimalai area, Batticaloa.
These deadly weapons were used by the LTTE SEA TIGER WING to attack the Sri Lanka Navy ships and craft in 1990s. The first incident was in February 1997, off Iranativu island, in the Gulf of Mannar.
Admiral Cecil Tissera took over as Commander of the Navy on 27 January, 1997, from Admiral Mohan Samarasekara.
The fight against the LTTE was intensified from 1996 and the SLN was using her Vanguard of the Navy, Fast Attack Craft Squadron, to destroy the LTTE’s littoral fighting capabilities. Frequent confrontations against the LTTE Sea Tiger boats were reported off Mullaitivu, Point Pedro and Velvetiturai areas, where SLN units became victorious in most of these sea battles, except in a few incidents where the SLN lost Fast Attack Craft.

Carl Gustaf recoilless rocket launchers
The intelligence reports confirmed that the LTTE Sea Tigers was using new recoilless rocket launchers against aluminium-hull FACs, and they were deadly at close quarter sea battles, but the exact type of this weapon was not disclosed.
The following incident, which occurred in February 1997, helped confirm the weapon was Carl Gustaf 84 mm Recoilless gun!
DATE: 09TH FEBRUARY, 1997, morning 0600 hrs.
LOCATION: OFF IRANATHIVE.
FACs: P 460 ISRAEL BUILT, COMMANDED BY CDR MANOJ JAYESOORIYA
P 452 CDL BUILT, COMMANDED BY LCDR PM WICKRAMASINGHE (ON TEMPORARY COMMAND. PROPER OIC LCDR N HEENATIGALA)
OPERATED FROM KKS.
CONFRONTED WITH LTTE ATTACK CRAFT POWERED WITH FOUR 250 HP OUT BOARD MOTORS.
TARGET WAS DESTROYED AND ONE LTTE MEMBER WAS CAPTURED.
LEADING MARINE ENGINEERING MECHANIC OF THE FAC CAME UP TO THE BRIDGE CARRYING A PROJECTILE WHICH WAS FIRED BY THE LTTE BOAT, DURING CONFRONTATION, WHICH PENETRATED THROUGH THE FAC’s HULL, AND ENTERED THE OICs CABIN (BETWEEN THE TWO BUNKS) AND HIT THE AUXILIARY ENGINE ROOM DOOR AND HAD FALLEN DOWN WITHOUT EXPLODING. THE ENGINE ROOM DOOR WAS HEAVILY DAMAGED LOOSING THE WATER TIGHT INTEGRITY OF THE FAC.
THE PROJECTILE WAS LATER HANDED OVER TO THE NAVAL WEAPONS EXPERTS WHEN THE FACs RETURNED TO KKS. INVESTIGATIONS REVEALED THE WEAPON USED BY THE ENEMY WAS 84 mm CARL GUSTAF SHOULDER-FIRED RECOILLESS GUN AND THIS PROJECTILE WAS AN ILLUMINATER BOMB OF ONE MILLION CANDLE POWER. BUT THE ATTACKERS HAS FAILED TO REMOVE THE SAFETY PIN, THEREFORE THE BOMB WAS NOT ACTIVATED.

Sea Tigers
Carl Gustaf 84 mm recoilless gun was named after Carl Gustaf Stads Gevärsfaktori, which, initially, produced it. Sweden later developed the 84mm shoulder-fired recoilless gun by the Royal Swedish Army Materiel Administration during the second half of 1940s as a crew served man- portable infantry support gun for close range multi-role anti-armour, anti-personnel, battle field illumination, smoke screening and marking fire.
It is confirmed in Wikipedia that Carl Gustaf Recoilless shoulder-fired guns were used by the only non-state actor in the world – the LTTE – during the final Eelam War.
It is extremely important to check the batch numbers of the recently recovered three launchers to find out where they were produced and other details like how they ended up in Batticaloa, Sri Lanka?
By Admiral Ravindra C. Wijegunaratne
WV, RWP and Bar, RSP, VSV, USP, NI (M) (Pakistan), ndc, psn, Bsc (Hons) (War Studies) (Karachi) MPhil (Madras)
Former Navy Commander and Former Chief of Defence Staff
Former Chairman, Trincomalee Petroleum Terminals Ltd
Former Managing Director Ceylon Petroleum Corporation
Former High Commissioner to Pakistan
Features
Yellow Beatz … a style similar to K-pop!
Yes, get ready to vibe with Yellow Beatz, Sri Lanka’s awesome girl group, keen to take Sri Lankan music to the world with a style similar to K-pop!
With high-energy beats and infectious hooks, these talented ladies are here to shake up the music scene.
Think bold moves, catchy hooks, and, of course, spicy versions of old Sinhala hits, and Yellow Beatz is the package you won’t want to miss!
According to a spokesman for the group, Yellow Beatz became a reality during the Covid period … when everyone was stuck at home, in lockdown.
“First we interviewed girls, online, and selected a team that blended well, as four voices, and then started rehearsals. One of the cover songs we recorded, during those early rehearsals, unexpectedly went viral on Facebook. From that moment onward, we continued doing cover songs, and we received a huge response. Through that, we were able to bring back some beautiful Sri Lankan musical creations that were being forgotten, and introduce them to the new generation.”
The team members, I am told, have strong musical skills and with proper training their goal is to become a vocal group recognised around the world.
Believe me, their goal, they say, is not only to take Sri Lanka’s name forward, in the music scene, but to bring home a Grammy Award, as well.
“We truly believe we can achieve this with the love and support of everyone in Sri Lanka.”
The year 2026 is very special for Yellow Beatz as they have received an exceptional opportunity to represent Sri Lanka at the World Championships of Performing Arts in the USA.
Under the guidance of Chris Raththara, the Director for Sri Lanka, and with the blessings of all Sri Lankans, the girls have a great hope that they can win this milestone.
“We believe this will be a moment of great value for us as Yellow Beatz, and also for all Sri Lankans, and it will be an important inspiration for the future of our country.”
Along with all the preparation for the event in the USA, they went on to say they also need to manage their performances, original song recordings, and everything related.

The year 2026 is very special for Yellow Beatz
“We have strong confidence in ourselves and in our sincere intentions, because we are a team that studies music deeply, researches within the field, and works to take the uniqueness of Sri Lankan identity to the world.”
At present, they gather at the Voices Lab Academy, twice a week, for new creations and concert rehearsals.
This project was created by Buddhika Dayarathne who is currently working as a Pop Vocal lecturer at SLTC Campus. Voice Lab Academy is also his own private music academy and Yellow Beatz was formed through that platform.
Buddhika is keen to take Sri Lankan music to the world with a style similar to K-Pop and Yellow Beatz began as a result of that vision. With that same aim, we all work together as one team.
“Although it was a little challenging for the four of us girls to work together at first, we have united for our goal and continue to work very flexibly and with dedication. Our parents and families also give their continuous blessings and support for this project,” Rameesha, Dinushi, Newansa and Risuri said.
Last year, Yellow Beatz released their first original song, ‘Ihirila’ , and with everything happening this year, they are also preparing for their first album.
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