Tax Expenditure Statement 2024/2025: Key Insights and Fiscal Impact

The Ministry of Finance has released the Tax Expenditure Statement (TES) 2024/2025, reaffirming the Government’s commitment to fiscal transparency, accountability, and evidence-based policymaking. The report presents a consolidated view of Sri Lanka’s tax expenditures—including exemptions, deductions, preferential tax rates, and special concessions—across major tax categories.

These tax expenditures function as indirect government support, designed to encourage investment, promote employment, support industry development, and provide relief for essential goods and services. However, they also represent a significant fiscal cost to the Government.

1. Major Tax Expenditures: A Snapshot

The highest revenue losses are associated with:

• Value Added Tax (VAT) – largely due to exemptions on essential goods and priority services.

• Corporate Income Tax (CIT) – concessions for non-BOI projects and industry-specific incentives.

• Social Security Contribution Levy (SSCL) – exemptions to reduce the cascading effect on turnover-based sectors.

• Excise and Customs Duties – reliefs targeting selected imports and industries.

Below is a summary of reported tax expenditures:

Tax Expenditure Summary (Rs. Million)

2. Key Findings

A. VAT Remains the Largest Source of Revenue Loss

• 2024 VAT exemptions alone cost Rs. 333.3 billion.

• In just six months of 2025, VAT exemptions have already reached Rs. 207.4 billion, indicating continued high reliance on VAT relief.

Observation:
VAT exemptions continue to dominate Sri Lanka’s tax expenditure landscape, largely due to relief on essential items and public service sectors.

B. Corporate Tax Exemptions Offset Revenue Significantly

• CIT exemptions for 2023/24 amount to Rs. 119.3 billion, nearly ten times the cost of PIT exemptions.

Observation:
The tax system is heavily geared toward incentivising corporate activity, with relatively smaller relief available to individual taxpayers.

C. SSCL Exemptions Growing in Importance

• SSCL revenue foregone for just the first half of 2025 totals Rs. 61.7 billion.

Observation:
SSCL exemptions are becoming a major fiscal component, particularly for sectors affected by turnover-based taxation.

D. Excise and Customs Duty Concessions Remain Material

• Excise duty exemptions exceed Rs. 17 billion across 2024 and 1H 2025.

• Customs duty concessions exceed Rs. 34 billion across 2024 and 1H 2025.

Observation:
Import-related tax concessions continue to be used as policy tools to manage consumption and facilitate essential imports.

3. Overall Fiscal Implications

Across all tax categories, the analysis highlights a substantial fiscal burden arising from Sri Lanka’s tax concessions. These measures support industry growth and essential consumption, but they also reduce the Government’s capacity to expand revenue—particularly important in the context of ongoing fiscal reforms and IMF commitments.

4. Way Forward: Strengthening Tax Expenditure Governance

The Ministry of Finance emphasises plans to:

• Integrate tax expenditure analysis into the annual budget cycle

• Improve data systems and consistency across reporting agencies

• Conduct more frequent evaluations of high-cost concessions

• Enhance transparency and equity in the administration of exemptions

This new approach forms part of Sri Lanka’s broader fiscal reform agenda aimed at improving efficiency in public resource management.

Conclusion

The Tax Expenditure Statement 2024/2025 underscores the scale and significance of tax exemptions granted across VAT, CIT, SSCL, and import-related duties. While these concessions support economic priorities, they also carry measurable fiscal costs. Clearer analysis, regular monitoring, and tighter focus on high-impact concessions will be essential as Sri Lanka continues its path toward fiscal stability.

Read More : Tax Expenditure Statement 2024/2025