Business

Tax relief provided by the Finance Ministry to designated investment projects and enterprise zones has crossed Rs. 276 billion across direct and indirect duty lines.

Official figures published in the Tax Expenditure Report 30 June 2026 highlight extensive tax revenue forgone through special benefits granted to Board of Investment firms and Strategic Development Projects.

Corporate income tax concessions made up the largest portion of this total, reaching Rs. 171.37 billion for Board of Investment enterprises in the 2024/25 basis year when measured against the benchmark 30 per cent corporate rate.

A tax base of Rs. 623.26 billion taxed at a reduced 14 per cent rate produced roughly Rs. 99.72 billion in concessions, while entities enjoying a complete zero rate accounted for an additional Rs. 52.97 billion.

Strategic Development Projects operating under a zero tax rate gained Rs. 18.39 billion in corporate tax relief from a tax base of Rs. 61.28 billion over the same operational timeframe.

Sri Lanka Customs data revealed that Board of Investment businesses received Rs. 76.13 billion in border tax waivers up to 31 May 2026.

These border concessions comprised Rs. 36.86 billion in Customs Import Duty, Rs. 23.05 billion in Ports and Airports Development Levy, and Rs. 16.22 billion in CESS exemptions.

Border tax relief tied to Strategic Development Projects amounted to Rs. 886 million, whereas exemptions linked directly to Colombo Port City totaled Rs. 24.3 million during this timeframe.

Inland Revenue Department records showed Value Added Tax concessions for Board of Investment entities hit Rs. 9.58 billion in the first quarter of 2026 from a tax base of Rs. 53.2 billion.

General manufacturing enterprises accounted for Rs. 5 billion of these Value Added Tax concessions, with wholesale and retail services taking Rs. 3.45 billion and textiles and garments receiving Rs. 349 million.

Strategic Development Projects logged another Rs. 43 million in Value Added Tax relief during the identical quarter.

Treasury officials highlighted that because the report gathers data across varying tax timeframes, the overall numbers cannot be interpreted as a single period revenue loss.

The document clarifies that these statistical figures do not measure the broader economic value generated through employment creation, foreign investment, or export proceeds.

Digital Mobility Solutions Lanka PLC (PickMe) generated Rs 22 billion (b) in income for its network of independent driver and merchant earners during the first quarter of FY2026/27. This reflects a robust 50% Year-on-Year (YoY) growth, reinforcing the company’s position as a key driver of Sri Lanka’s digital economy. Furthermore the platform contributed Rs 773 million (m) in national taxes during the quarter, maintaining strong operational momentum despite temporary fuel supply disruptions stemming from the Middle Eastern conflict.

The Company reported revenue of Rs 2.5 b for the quarter, a 40% increase from Rs 1.8 b recorded in the corresponding period last year. Despite fuel rationing and the operational challenges experienced during the quarter, revenue growth was driven by a 40% year-on-year increase in average monthly unique consumers, an all-time high during the quarter, reflecting the continued expansion of PickMe’s marketplace ecosystem.

This growth translated into a 43% year-on-year increase in total platform movements, while Gross Transaction Value (GTV), the total value of trips and deliveries facilitated through the platform, increased 48% year-on-year to Rs 25.3 b from Rs 17.0 b in the corresponding quarter last year. Over 85% of this value flowed directly to PickMe’s network of independent drivers and merchant earners, highlighting the platform’s growing role in creating livelihoods, supporting entrepreneurship and enabling digital commerce across Sri Lanka.

Chairperson Ajit Gunewardene said the results reflect the broader economic value created through the platform’s continued expansion. “These results represent far more than business growth. Every transaction facilitated through PickMe creates income for drivers, business for merchants and greater convenience for consumers, generating meaningful economic value across the country. That is where the real significance lies: not in what the platform earned, but in what it enabled others to earn. As the marketplace grows, sustaining and widening that contribution is the responsibility we carry”.

While year-on-year growth remained strong, the Company noted that sequential performance moderated from the exceptionally strong fourth quarter of FY2025/26, which has historically been PickMe’s strongest quarter due to seasonal demand. Net revenue eased by 1%, primarily due to fuel supply constraints and quota-related disruptions that temporarily affected driver availability. Higher fuel prices also weighed on consumer affordability, contributing to softer trip volumes during the quarter. Nevertheless, average monthly unique consumers continued to grow by 3% quarter-on-quarter, demonstrating the resilience of customer engagement despite the temporary market disruption.

Founder and Chief Executive Officer Jiffry Zulfer said PickMe’s long-term focus remains on expanding the value created across its marketplace rather than simply growing the platform itself. “Every quarter of growth on the platform translates into more earning opportunities for our driver earners, more business for merchants and greater convenience for millions of Sri Lankans. That multiplier effect is what drives our investment strategy. We will continue strengthening supply-side reliability, investing in technology and expanding our regional presence so that the value created by the platform reaches even more people and communities across the country.”

Net profit for the quarter increased 45% year-on-year to Rs 631 m from Rs 437 m in the corresponding period of the previous financial year. Sequentially net profit moderated by 10% compared with the record fourth quarter of FY2025/26, reflecting softer marketplace volumes, higher IT infrastructure and subscription costs, and the impact of currency depreciation. The Company stated that the result demonstrates the resilience of its operating model despite temporary external disruptions.

Today, PickMe has evolved beyond a mobility platform into one of Sri Lanka’s largest digital marketplaces, connecting ms of consumers with a growing network of independent drivers and merchant earners. By facilitating transportation, deliveries and digital commerce at scale, the platform continues to generate significant economic value while supporting livelihoods, small businesses and the country’s ongoing digital transformation.

Rapid advances in artificial intelligence are threatening to destabilise Sri Lanka's long-term target of achieving USD 5 billion in annual digital exports by 2030 by fundamentally disrupting the traditional software development growth model.

This concern was raised by Deputy Minister of Digital Economy Eranga Weeraratne during the national validation workshop on the proposed Digital Export Roadmap held in Colombo, where senior policymakers, industry leaders, and technical experts gathered to review the country's technology trajectory.

Government leaders and private sector executives warned that the national reliance on billing international clients for engineering hours is becoming increasingly unsustainable as automated tools drastically diminish coding times and reduce staffing requirements for software projects.

Addressing industry stakeholders, the Deputy Minister questioned whether the traditional billing structure remains viable if automated programming platforms eliminate a third of billed hours, urging domestic firms to abandon low-value outsourcing in favour of proprietary software products, intellectual property, and specialised knowledge solutions.

These concerns reflect a deeper policy pivot as the State prepares a comprehensive reform package spanning taxation, venture capital, capital mobility, and public procurement to enable the technology sector to adapt.

Policymakers acknowledged that regulatory changes alone will prove insufficient, questioning whether national resources have been diluted by attempting to compete across numerous technology niches rather than developing distinct global strengths in two or three specialised fields.

To establish international credibility, officials emphasised that strategic branding must be matched by genuine technical capabilities capable of attracting international capital and top-tier talent, marking an implicit recognition that past export strategies suffered from weak accountability, fragmented leadership, and a lack of measurable execution.

Supporting these concerns, GovTech Sri Lanka Chairman Dr Hans Wijayasuriya noted that while the local technology ecosystem had previously survived major national disruptions, including the Easter Sunday attacks, the pandemic, and the severe economic crisis, mere survival could no longer be equated with meaningful industry growth.

Failure to pivot from selling basic engineering hours towards high-value innovation poses a severe threat to Sri Lanka's foreign exchange earnings, broader economic recovery, and talent retention during a crucial era of global technological transformation.

As international software markets undergo rapid restructuring, the Ministry of Digital Economy and industry stakeholders are scheduled to refine the Digital Export Roadmap and establish actionable performance indicators in the coming months to accelerate the national transition towards intellectual property creation.

The EU adopted new GSP+ rules in May 2026 that will require higher compliance on human rights, labour, environmental standards and governance from the start of 2027.

Under these revised requirements, Sri Lanka must meet obligations on disability rights, child protection during conflict, labour inspection, the Paris Agreement and organised crime, in addition to previously established criteria.

The EU has introduced a stricter “urgent withdrawal” mechanism for non-compliance and extended the review cycle from two to three years, meaning Sri Lanka would have fewer chances to address any compliance issues identified.

Current GSP+ trade preferences will be maintained until the end of 2028, but future access is not automatic.

According to JAAF, the EU requires Sri Lanka to formally reapply under the new regulations, submitting a comprehensive action plan in 2027 detailing specific, evidence-supported steps towards meeting the enhanced conditions.

During a recent GSP+ review, officials from Brussels made clear that “the action plan cannot be a paper exercise; this time, Sri Lanka will have to show credible, demonstrable action, supported by evidence of implementation”.

The apparel sector, which provides jobs for more than 350,000 people and accounts for 40-45% of the country’s total exports, is particularly reliant on GSP+.

JAAF claims the sector’s export earnings exceeded $5bn in December 2018, less than two years after the restoration of GSP+ status by the EU, underscoring the scheme’s importance to the industry’s performance.

One challenge highlighted by JAAF is the low take up of GSP+ benefits by Sri Lankan exporters, which has remained between 49% and 59%. This is largely due to the EU’s rules of origin, which stipulate that garments must be manufactured from domestically produced yarn.

Most Sri Lankan apparel makers rely on imported textiles that do not qualify under these conditions. JAAF claims that investments in local fabric production, agreements with regional partners and negotiations with the EU for more flexible rules could help increase utilisation.

The time frame for action is narrowing. Sri Lanka’s categorisation as an upper-middle-income country by the World Bank in July 2026 places it close to the GSP+ exit threshold. If this income level is maintained for three years, Sri Lanka risks losing access to the scheme.

JAAF suggests Sri Lanka begins early reapplication in 2027 to avoid any potential disruption to market access, noting that late application could see apparel exports face Most Favoured Nation tariffs as soon as 2029 if renewal is denied.

EU Ambassador Carmen Moreno recently told the Sri Lankan-German Business Forum that GSP+ “has delivered mixed results in Sri Lanka,” noting that manufacturing remains a smaller part of GDP compared to other export-driven economies.

Moreno encouraged Sri Lanka to pursue reforms and industrial investment, observing that the country has yet to realise the full potential of the preferences already available.

JAAF maintains that strengthening compliance and improving utilisation rates ahead of the 2027 application will be essential if Sri Lanka’s garment sector is to retain its access to the EU market under the revised GSP+ scheme.

Earlier this year, JAAF shared that Sri Lanka’s apparel exports dropped by 11.46% in February 2026, as key global markets experience increased strain, with the EU recording the steepest fall.

The Central Bank of Sri Lanka (CBSL) has ordered licensed finance companies to immediately halt regulatory bypass practices and enforce strict vehicle financing limits to prevent systemic financial instability.

The directive, issued on 28 July 2026 by the Macroprudential Surveillance Department of the central bank to chief executive officers of all registered finance firms across the island, follows regulatory discoveries of artificially inflated vehicle valuations and improper bridging loans used to circumvent existing credit controls.

Regulators discovered that motor vehicle valuers and sellers were routinely submitting valuations and invoices significantly higher than prevailing market prices, artificially inflating asset values across the non-bank financial sector.

The central monetary authority explicitly targeted alternative and secondary financing structures, confirming that bridging facilities provided alongside primary leases, hire purchase agreements, and standard motor vehicle loans fall strictly under regulatory caps.

Officials instructed financial institutions to cease disbursing or facilitating any credit arrangements that directly or indirectly breach prescribed loan-to-value boundaries.

The regulator warned that institutions prioritizing short-term profitability over macroprudential guidelines risk compounding systemic vulnerabilities, stressing that compliance must be maintained in both form and substance to safeguard long-term economic resilience.

Sri Lankan exporters selling goods and services to European Union markets face potential financial penalties of up to two million euros or four percent of annual turnover if they fail to comply with strict new sustainability regulations designed to eliminate greenwashing.

The upcoming enforcement measures, led by EU authorities under the Empowering Consumers for the Green Transition Directive, require all non-European suppliers to provide verifiable, credible evidence for any environmental claims made across product labels, promotional campaigns, websites, and official sustainability disclosures.

The statutory obligations will take effect on 27 September 2026, directly impacting local businesses across primary export categories including tea, textiles, spices, rubber, and food products.

Local advisory firm Peterson Solutions Sri Lanka warned that failure to establish comprehensive environmental verification systems risks market access restrictions and severe reputational damage.

Officials from the firm stated that generic marketing descriptors such as eco-friendly or sustainably produced will no longer be permitted without backing data, as sustainability metrics have transitioned from voluntary corporate initiatives into mandatory trade entry conditions.

Furthermore, the advisory firm highlighted that compliance applies to any offshore manufacturer marketing to European consumers, dispelling a widespread misconception among domestic firms that European regulatory reforms apply exclusively to businesses registered inside the single market.

The EU regulations form part of a structural overhaul of international trade standards targeting supply chain transparency and corporate accountability.

In addition to anti-greenwashing rules, exporters must simultaneously adjust operations to align with the Packaging and Packaging Waste Regulation starting 12 August 2026, alongside due diligence mandates under the EU Deforestation Regulation commencing 30 December 2026 for larger corporate entities.

Corporate strategy advisors noted that early adoption of these environmental, social, and governance tracking mechanisms should be treated as a commercial investment to secure long-term client trust and preserve market competitiveness against regional rivals.

Proactive compliance with European environmental standards is now a critical prerequisite for safeguarding Sri Lanka's vital export revenue and maintaining integration within high-value global supply chains.

Exporters across affected agricultural, manufacturing, and service sectors are expected to audit their promotional claims, revise compliance frameworks, and establish supply chain tracing protocols ahead of the mandatory August and September 2026 deadlines.

The total combined valuation of Sri Lanka's top 100 corporate brands has reached a historic peak of Rs. 652 billion, comfortably exceeding pre-crisis figures.

According to the Sri Lanka 100 2026 report released by brand valuation consultancy 'Brand Finance' on July 31, corporate brand values surged by 17 per cent year-on-year to eclipse the former 2019 benchmark of Rs. 630 billion.

The valuation milestone serves as a key indicator of macroeconomic recovery following the 2022 sovereign debt crisis, with the national economy sustaining five per cent GDP growth in 2025 despite an estimated USD 4.1 billion loss caused by Cyclone Ditwah.

Financial institutions continue to anchor the national commercial landscape, accounting for 42 per cent of total ranked brand value at 275 billion rupees and securing six of the top ten individual positions.

State-owned Bank of Ceylon retained its status as the most valuable Sri Lankan brand with a valuation of Rs. 65.5 billion, followed by Commercial Bank at Rs. 54.9 billion.

In the telecommunications sector, Dialog registered a 16 per cent rise in brand value to Rs. 41.1 billion while overtaking supermarket chain Keells to become the country's strongest overall brand with a Brand Strength Index score of 89.4 out of 100.

Significant corporate expansion was also recorded across the sector, including Nations Trust Bank's 35 per cent brand value surge following its acquisition of HSBC's domestic retail operations, and mobility provider PickMe's growth to Rs. 4.8 billion through artificial intelligence integration.

Commenting on the findings, Brand Finance Lanka Chairman Ruchi Gunewardene said that exceeding pre-crisis thresholds reflected renewed institutional confidence, adding that future commercial expansion would rely on sector diversification, continuous digital transformation, and cross-industry adoption of artificial intelligence.

Sri Lanka’s economic expansion continued into June, driven by resilient service sectors and steady factory output, though the manufacturing sector saw its growth momentum cool, according to the latest Central Bank data.

The Purchasing Managers’ Index (PMI) highlights a two-speed economy with a booming services sector capitalising on domestic recovery, alongside a manufacturing sector grappling with persistent domestic labour bottlenecks and global geopolitical anxieties.

Manufacturing moderates amid labour constraints

The Manufacturing PMI dropped to 53.0 in June from 56.6 in May. While any figure above the 50-point threshold indicates expansion, the drop signals a distinct deceleration in factory activity.

A flattening of new orders, which hit the neutral 50-point mark, was the primary drag on the index. Despite stagnant order books, actual production managed an upward trajectory, heavily supported by the robust food and beverages segment.

However, manufacturers are increasingly hitting operational walls. Firms reported severe shortages of skilled labour paired with escalating wage costs. To counter supply chain volatility and lengthening delivery times, companies aggressively built up inventories, stocking up on raw materials to create operational buffers.

While the outlook for the next three months remains generally optimistic, local manufacturers expressed growing anxiety over global stability, particularly the ongoing volatility in the Middle East, which threatens supply routes and energy prices.

Services sector surges on tourism hopes

Meanwhile, the services sector accelerated, with its index climbing to 58.5 in June from 56.9 in May.

The expansion was broad-based but led predominantly by financial and professional services, alongside strong gains in the insurance sector. This commercial momentum was reflected in the new businesses index, which jumped to 62.5 from 58.0 the previous month.

The service sector's buoyancy translated into job creation. Staffing levels rebounded sharply into growth territory, rising to 54.0 from 49.4 in May, as firms expanded their workforces to meet rising demand.

Furthermore, the persistent contraction in backlogs was halted, with outstanding business volumes stabilising perfectly at the neutral 50-point mark.

Service providers remain highly optimistic about the upcoming quarter. The sector is banking heavily on the continued domestic macroeconomic recovery and a highly anticipated influx of tourists for the upcoming Kandy Esala Perahera festival, which is expected to provide a substantial boost to hospitality, transport,

Sri Lanka's flagship apparel sector has entered a critical operational window as the government prepares to formally reapply for the European Union's revised GSP Plus trade preference scheme under heightened compliance rules.

The garment industry, which generates over USD 5 billion in annual exports, employs more than 350,000 workers, and contributes up to seven per cent of the national Gross Domestic Product, risks losing its competitive edge in key European markets if the country fails to meet the updated criteria.

With the European Parliament adopting a expanded regulatory framework, beneficiary nations must now demonstrate verified implementation across an expanded set of obligations, including human rights, climate action under the Paris Agreement, labor inspections, and anti-corruption measures.

A major commercial hurdle facing the sector is the historic underutilisation of existing trade benefits, with local exporters successfully claiming preferential access on only 49 to 59 per cent of eligible shipments.

According to industry analysts, this deficit is primarily driven by strict European Union rules of origin that require domestic yarn sourcing, a requirement that Sri Lanka struggles to fulfill due to insufficient local textile manufacturing capacity.

European Union Ambassador Carmen Moreno recently emphasised that the island nation has not fully capitalised on these concessions, urging domestic policymakers to accelerate industrial reforms, replace the Prevention of Terrorism Act with international standard legislation, and tackle issues surrounding illegal fishing and illicit narcotics before submitting the renewal application.

The urgency of securing a seamless transition is further compounded by the World Bank's recent reclassification of Sri Lanka as an upper middle income economy, a status that would eventually disqualify the nation from GSP Plus benefits if maintained for three consecutive years.

Government officials and industrial leaders must submit a comprehensive, evidence backed action plan during 2027 to prevent Sri Lankan exports from reverting to standard standard tariffs by mid 2029, a move that will determine the long term stability of the country's primary manufacturing export.

Oil prices dropped about 1% on Thursday, down for a third consecutive day, after Qatar said Iran and the U.S. ​had made progress in indirect talks focused on the Strait of Hormuz, ‌which handled one-fifth of global oil supply before the war.
The talks made "positive progress" on matters related to the memorandum that halted the war in June, a Qatar Foreign Ministry ​spokesperson said in a post on X, though there was no sign the two ​sides made headway towards a lasting peace.
Brent futures lost 79 cents ⁠or 1.1% to $70.78 a barrel by 0642 GMT, while U.S. West Texas ​Intermediate crude fell 84 cents or 1.2% to $67.74 a barrel. Both benchmarks ​fell more than 1% in the previous session.
As the strait stays open and crude oil flows out, there are growing expectations of oversupply and competition for market share ​is pushing prices down, Haitong Futures said in a note.
OPEC+ oil-producing countries are ​likely to agree to a furtherhikein their output targets from August when they meet ‌on ⁠Sunday, sources said on Wednesday.
UBS cut on Thursday its Brent forecasts citing the U.S.-Iran pact and the subsequent increase in oil shipping through the Strait of Hormuz.
It cut its average Brent price forecast for the September quarter by $25 and for ​the December quarter ​by $10. The bank ⁠now expects the benchmark to average $80 a barrel during the second half of the year and $75 in 2027.
"Despite ​this, we believe it is premature to assume a ​full normalisation, and ⁠see price risk skewed to the upside, noting that inbound tankers to the Persian Gulf have lagged outbound tankers," UBS said.
The next meeting between Iran and ⁠U.S. negotiators ​will take place after July 9 funeral processions for ​Iran's late Supreme Leader Ayatollah Ali Khamenei, the Qatar ministry added.

(Reuters)

Sri Lanka's fiscal recovery is relying heavily on regressive consumption taxes that disproportionately affect ordinary citizens rather than progressive income taxes.

An analysis published by Verite Research's Public Finance platform reveals that the state successfully raised its revenue to 16.7 per cent of Gross Domestic Product (GDP) in 2025, marking a two-decade high following a series of economic shocks that had previously dragged collections down to a critical low of 8.3 per cent in 2021.

The post-crisis turnaround was primarily propelled by a steep escalation in Value Added Tax collections, which rose from 3 per cent of Gross Domestic Product in 2018 to 5.3 per cent in 2025.

According to Verite, this substantial jump was driven by raising the tax rate to 18 per cent, eliminating key exemptions, and lowering registration thresholds to pull more businesses into the tax net.

Adjustments to personal and corporate income tax rates contributed a mere 1.2 per cent of GDP to state coffers.

Additional gains were secured through the Social Security Contribution Levy, which generated 1 per cent of Gross Domestic Product largely as a replacement for the former Nation Building Tax, alongside a 1.5 per cent boost following the relaxation of restrictions on vehicle imports.

The heavy reliance on indirect taxation raises serious concerns regarding economic equity, while leaving the country's total revenue collection well behind regional peers like India, Nepal, Bhutan, and the Maldives, all of which maintain revenue levels at or above 20 per cent of Gross Domestic Product.

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