Uncollected tax debts at the Inland Revenue Department reached nearly Rs 2.1 trillion at the end of 2025 as legal disputes stalled recovery efforts across Sri Lanka.
The scale of the financial shortfall was detailed in a technical assistance report released by the International Monetary Fund (IMF), which highlighted severe structural bottlenecks within the national tax administration.
The bulk of the outstanding debt remains locked in litigation, with approximately Rs 1.6 trillion currently subject to formal appeals or administrative disputes.
The problem marks a sharp escalation from 2024, when total tax arrears stood at nearly Rs 1.1 trillion, including Rs 947 billion tied up in legal challenges.
Uncontested tax debts have also continued to accumulate over extended periods due to persistent staff shortages, weak task prioritisation, and the absence of a risk-based assessment framework. Under current legislation, the tax department lacks statutory authority to write off uncollectable debts directly under the Inland Revenue Act and the Value Added Tax Act, requiring all write-off requests to be submitted to the Ministry of Finance instead.
The multilateral lender noted that enforcement action had been inadequate even for undisputed arrears older than five years.
To resolve the backlog, the report advised establishing a risk-based management system to categorise arrears by age, dispute status, recoverability, and collection cost.
This framework would enable tax authorities to focus resources on high-value, recoverable debts while separately handling low-value or uncollectable balances.
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