Sri Lanka's Corporate Income Tax (CIT) collection is notably lower than other South Asian countries, despite  having a higher tax rate. In 2023, Sri Lanka’s CIT revenue collection was 2.0% of GDP, with a CIT rate of 30%. In contrast, other South Asian countries like Bhutan and the Maldives, with lower CIT rates of 25% and 15%, collected—3.7% and 2.7% of GDP, respectively. India, which also has a 30% CIT rate, collects more revenue than Sri Lanka. Only Bangladesh collects less CIT revenue (1.5% of GDP in 2022), but it also taxes corporate income at a lower rate of 27.5%. 

Even in the past, Sri Lanka’s revenue collection has been lower despite having a higher rate.  Over the past decade (2013-2023), Sri Lanka's average CIT revenue was 1.5% of GDP, significantly below the South Asian average of 3.4%. Bhutan, for instance, consistently collected 6–7% of GDP in CIT revenue before 2021 with a 30% CIT rate (reduced to 25% after 2021) . Even Bangladesh’s historical CIT collections were higher than Sri Lanka’s. Sri Lanka’s CIT rate has consistently been 28% or higher, except for the period between 2020 and 2022. This rate exceeds the South Asian average of 26% for the years 2013–2023. 

Sri Lanka's systematically low revenue collection may be attributed to steep concessionary tax rates in certain sectors and tax exemptions and holidays granted under various laws. For instance, prior to October 2022, small and medium enterprises, and sectors such as education and healthcare benefited from concessionary rates of 14%, while manufacturing businesses had a tax rate of 18%. Additionally, tax exemptions and holidays continue to be granted to large firms under the BOI and SDP acts.

Inefficiencies in the tax collection system may also play a significant role. Most concessions were eliminated with the enactment of the Inland Revenue (Amendment) Act No. 45 of 2022, which also raised the standard CIT rate from 24% to 30%. Despite these reforms, CIT revenue showed only a slight increase, rising from 1.93% of GDP in 2022 to 2.03% in 2023, highlighting ongoing inefficiencies in the tax system.

Note 

Standard tax rate: The most applicable CIT rate is used.  

Revenue collection figures are for the year 2023, except for Bangladesh (2022) and Nepal (2021).  

Pakistan and Afghanistan are excluded from the analysis due to the lack of available data.   

In Bangladesh, CIT rates for publicly traded companies range from 20% to 22.5%, while in India, domestic companies with turnover below INR 4 billion face a 25% CIT rate. 

Sources 

Tax Foundation. "Corporate Tax Rates by Country: 2023." Tax Foundation, 2023, https://taxfoundation.org/data/all/global/corporate-tax-rates-by-country-2023/#:~:text=The%20worldwide%20average%20statutory%20corporate,181%20jurisdictions%2C%20is%2023.45%20percent.  

Worldwide Corporate Tax Guide." EY Global, https://www.ey.com/en_gl/technical/tax-guides/worldwide-corporate-tax-guide. Accessed 29 November 2024 

OECD (2024), Revenue Statistics in Asia and the Pacific 2024: Tax Revenue Buoyancy in Asia, OECD Publishing, Paris, https://doi.org/10.1787/e4681bfa-en.  

GRD: Government Revenue Dataset." UNU-WIDER, 2023, https://www.wider.unu.edu/project/grd-government-revenue-dataset  

Inland Revenue Department of Sri Lanka. Income Tax Act No. 45 of 2022. 2022, https://www.ird.gov.lk/en/publications/Acts_Income%20Tax_2017/IR_Act_No._45_2022_E.pdf. 

Inland Revenue Department of Sri Lanka. Assessment of Corporate Income Tax (CIT) for 2022-2023. 2023, https://www.ird.gov.lk/en/Downloads/IT_Corporate_Doc/Asmt_CIT_003_2022_2023_E.pdf. 

Parliament of Sri Lanka. Second Report of the Committee on Ways and Means. 2023, https://www.parliament.lk/uploads/comreports/1712049750029698.pdf 

Research By: Sadini Galhena ,Raj Rajakulendran, Anushan Kapilan 

Visualisation By: Sadini Galhena