📈 Sri Lanka's Tax Compliance & Morale Challenge

Sri Lanka launched the "Badu Shakthi 2026" campaign to boost voluntary compliance, but structural fragile points persist despite strong revenue growth, based on provisional data and official reports. • Overall Revenue & Structural Imbalance: - Government tax revenue rose to ~Rs. 5.05 Trillion in 2025. - The direct-to-indirect tax ratio worsened from 28:72 to 23:77 (against a target of 60:40), placing a higher proportional burden on lower-income workers via VAT. • Taxpayer Registration vs. Active Base: - Over 13 Mn TINs issued since Jan 2024, but personal income tax files stand at just over 1.2 Mn. - Registered income taxpayers rose to 1.30 Mn (up from 1.09 Mn in 2024); VAT registrations grew from 21,227 to 33,187. - 40%+ of taxable transactions estimated to be cash-based and untraceable. • APIT & Corporate Filing Gaps: - Out of 2.55 Mn APIT employee records (2024/2025), 75.6% (1.92 Mn) had no tax deducted. - 83,397 high earners contributed Rs. 150.47 Bn (78.4%) of total APIT collections (Rs. 191.91 Bn). - 94% of large corporates filed returns on time vs. only 35% for small/medium corporates and 25% for individuals. • Arrears & Legal Framework: - Disputed IRD tax arrears spiked to Rs. 1.68 Trillion (77.6% of Rs. 2.16 Trillion total arrears) by end-2025. - Inland Revenue Amendment Act No. 11 of 2026 introduced strict penalties (fines up to Rs. 400,000 / up to 6 months imprisonment) for specified compliance failures.