Former Central Bank Deputy Governor Dr. W.A. Wijewardena has urged the Sri Lankan government to moderate its revenue collection targets in the upcoming 2027 Budget, saying that excessive taxation combined with deteriorating public services is eroding public trust and economic productivity.
Delivering the 28th Annual Tax Oration of the Institute of Chartered Accountants of Sri Lanka in Colombo, the veteran economist warned that the state's aggressive fiscal consolidation measures had become counterproductive for the country.
The former central banker pointed out that government revenue as a percentage of gross domestic product had climbed rapidly from 12.3 per cent in 2021 to surpass the International Monetary Fund's 15 per cent target.
He explained that while official fiscal targets were met ahead of schedule, the underlying extraction of capital from households and businesses was suppressing private consumption and essential investment.
According to the top economist, a series of policy adjustments, including lowering the personal income tax threshold to Rs.100,000 before settling at Rs.150,000, expanding the maximum marginal tax rate to 36 per cent, enforcing mandatory Taxpayer Identification Numbers for all adults, and raising Value Added Tax to 18 per cent while lowering registration thresholds to Rs.36 million, had pulled smaller enterprises into a complex compliance framework.
He highlighted that indirect levies on essential goods created a regressive burden that hit lower income earners disproportionately hard, compounding the double pressure of direct taxation and inflation.
Dr. Wijewardena also criticised the structure of IMF prescriptions, asserting that relying primarily on revenue expansion while ignoring expenditure reform prioritises creditor repayments over taxpayer welfare.
He noted that although the government achieved a primary budget surplus of nearly 4 per cent against an IMF target of 1.5 per cent in 2025, it did so by failing to spend a quarter of its allocated capital expenditure budget.
Capital spending execution remained similarly sluggish into 2026, with only 28 per cent of the annual allocation deployed by the end of September.
He stressed that suppressing public investment directly weakens long-term national economic growth, creating a systemic cycle of fiscal decline.
Pointing to severe delays at police stations, overcrowded hospital wards, and widespread reliance on private tuition, he said that the fundamental social contract between the state and its citizens had been broken, further worsened by technical failures in tax filing systems like the Inland Revenue Department's digital infrastructure.
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