## 📈 Sri Lanka’s Tax Expansion: Revenue Growth vs. Administrative Justice

The push for fiscal consolidation under the IMF program has led to a massive expansion of the Sri Lankan tax net. However, rising concerns emerge regarding the "coercive" nature of enforcement and the lack of effective redress for taxpayers. • Explosive Growth in Tax Files Income Tax files more than tripled: 333,313 (2022) to 1,093,134 (2024). VAT registrations doubled: 10,604 to 21,227 in the same period. Revenue Collections: Grew 55% (2023), 25% (2024), and a further 25% in H1 2025. • Sectoral Impacts & Risks ICT/BPM: The April 2025 15% tax on service exports has triggered downsizing and relocation to the Port City or overseas. Apparel & Textiles: Exporters face high compliance costs and arbitrary assessments that threaten thin margins. BOI Firms: Previously insulated, these firms now face extensive customs audits, increasing operational risks. • Administrative Challenges Arbitrary Assessments: IRD often rejects self-assessments without legal reasoning; errors in IT systems are frequently treated as "defaults." Punitive Penalties: Customs penalties can exceed 100x the duty for technical errors (vs. 10x–20x in Singapore). Redress Barriers: Challenging an assessment requires a 10% non-refundable or 25% refundable deposit, making justice inaccessible for many. • Economic Outlook Aggressive tax administration risks a "destructive cycle" where punitive enforcement deters investment, ultimately eroding the national tax base. _Note: Summary based on provisional data and current economic reporting as of March 2026._