Economy & Growth

Tax-to-GDP ratio: SL to achieve 20% Tax/GDP

Sri Lanka must reach a tax-to-GDP ratio of at least 20%, going by the Asian region Governmental standard of tax-to-GDP ratios that range between 22-25%, Economic Development Deputy Minister Dr. Anil Jayantha Ferando said yesterday (15), at a press conference held at the Inland Revenue Department (IRD) to commemorate revenue collection of over Rs. 50 billion.

“When you take the Asian region, there is a benchmark for countries for tax revenue as a percentage of GDP which demonstrates a capacity to provide public services. In the Asian region, as a percentage of GDP it is between 22-25%,” Fernando said.

Sri Lanka’s tax-to-GDP ratio hit a low point in 2022 with a 7.28% ratio, which later increased marginally to 9.92% in 2023 and reached 12.7% in the first half of 2024 – crucially to meet the International Monetary Fund’s (IMF) Extended Fund Facility (EFF) programme target of 13.5% to 14% of GDP for the year, to ensure debt sustainability. This goal was achieved by the end of the year due to better-than-expected revenue collection and lowered spending.

“Our long term goal is to gradually get to that goal, at least to 20%,” Fernando said. “When you take Sri Lanka’s tax revenue, especially in the last few years, we were able to meet the goals set within the given framework. As a percentage of GDP, we were able to meet each goal within a short time period,” Fernando said, speaking on the performance of 2024.

He further opined that regardless of laws and technologies introduced to increase tax revenue collection, the Sri Lankan Government is to navigate tax avoidance and evasion, in its bid to maintain a tax-to-GDP ratio of 15-16%, projected for this year.

“We were at a range below 10%, now we are able to bring it to 15% and take it to 16% of GDP, by the end of the year. If we are able to maintain it at 15.4%, we can work within this framework. When you take a developed country, usually it ranges between 30-40%.”

The Sri Lankan Government expects the tax-to-GDP ratio to decline to 15.4% in 2026, from the 15.9% recorded this year. Fitch Ratings projected that Sri Lanka’s failure to maintain growth in tax revenue in line with GDP could over time add to the fiscal stresses on Sri Lanka’s credit profile.

Sri Lanka’s 2026 National Budget, broadly aligning with the IMF programme’s targets to ensure revenue-based fiscal consolidation, outlined a primary surplus of 2.5% of GDP and a deficit of 5.1% of GDP for 2026.

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