Public Finance Data and Analysis
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The government foregoes LKR 966 billion in revenue due to exemptions, deductions, credits, and preferential rates in taxes in the financial year 2023/24. This tax expenditure figure amounts to around 3% of GDP and 21% of projected tax revenues in 2025. The fiscal implication of this is considerable, with the potential to reduce the budget deficit by nearly half—from LKR 2,200 billion to LKR 1,234 billion.
Key Tax Expenditure Items
The 2023/24 Tax Expenditure Statement defines tax expenditure as the revenue foregone through specific policy measures.
These include:
According to the official tax expenditure statement, Sri Lanka’s tax expenditure arises from multiple sources: personal income tax, corporate income tax (CIT), value-added tax (VAT), customs import duties (CID), and the luxury motor vehicle tax. Among these, CID, VAT, and CIT account for the largest shares. Each contributes roughly one-third of the total tax expenditure.
Global Perspective on Tax Expenditure
Sri Lanka’s tax expenditure is broadly comparable with that of other South Asian countries. However, nations such as India and Bhutan maintain significantly lower tax expenditures as a share of GDP and government revenue. India, in particular—the fastest-growing large economy in the world—has kept its tax expenditure minimal at 1.01% and seen significant growth in the last decades .
Sources
Ministry of Finance, Sri Lanka " Budget, economic and fiscal position report" at https://www.treasury.gov.lk/api/file/cd5b1457-aecd-429f-acef-3b7bfc3908a0 [last accessed 12 March 2025].
World Bank "Tax expenditure manual" (2024) at https://documents1.worldbank.org/curated/en/099062724151636908/pdf/P174543148ba880bb188fd1ce06f588a6aa.pdf [last accessed 12 March 2025]
Global Tax Expenditures Database at https://gted.taxexpenditures.org/country-profile/albania/ [last accessed 12 March 2025]
Research By: Sadini Galhena and Anushan Kapilan
