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.