Sri Lanka’s economy grew 4.7 per cent in the first half of 2026, but only a quarter of households earn enough to cover their living costs. An analysis published by the Daily Mirror on Wednesday argues the gap is largely explained by indirect taxes — and that the growth figures and the household experience are measuring different things.
The piece is a bylined analysis by Indika Hettiarachchi, not a news report, and its conclusions are his. He is described as an investment, strategy and policy advisory professional with a master’s degree in economics from Colombo, an undergraduate business degree from Wisconsin and a CFA charter. This article reports his argument; it does not adopt it.
The arithmetic at the centre of it
Hettiarachchi writes that first-half 2026 data show:
| Measure | Growth, H1 2026 |
|---|---|
| GDP, nominal terms | 11.2% |
| Gross Value Addition (real economic activity) | 8.6% |
| Net consumption taxes | 34.6% |
The gap between the first two lines, he argues, is accounted for by the third. Because GDP at market prices includes taxes on products while Gross Value Addition does not, a sharp rise in consumption taxes lifts the headline growth number without a matching rise in what the economy actually produced.
He puts consumption taxes at 12 per cent of GDP — “the Government takes (on average) a 12 rupee cut on every 100 rupee worth of economic goods” — and notes this sits on top of income taxes, which do not appear in GDP at all.
The argument
From there the piece makes three claims:
- The tax “directly impacts the cost of everything that is sold in the country,” slowing consumer demand while pushing prices up.
- High indirect taxes alongside slower Gross Value Addition growth point to “a major economic shock rather than an economic transformation,” with the GDP–GVA gap widening sharply since 2023 under contractionary fiscal policy.
- Prolonged high indirect taxation risks stagflation and loss of export competitiveness, with “the worst impact” being “the gradual shrinking of the Middle Class and increase in poverty.”
He notes that a negative gap is possible, and has occurred during expansionary periods.
Two cautions on the headline
The Daily Mirror’s headline states that Sri Lanka’s indirect taxes are among the highest in the world. The text is more guarded: Hettiarachchi writes that they are “probably among the highest in the world.” The hedge is his, and it is dropped in the headline.
The comparison itself cannot be checked from the published piece. He refers to “a few other countries for comparison purposes” shown in a chart — the countries and their rates are not stated in the text, and this desk is not reproducing figures it has not seen. The same applies to the longer-run GDP-versus-GVA series he describes; it is presented as a chart, not as numbers.
Where it meets the Central Bank
The analysis gives the cost-of-living context as “inflation reaching above 8 percent.” Central Bank Governor Nandalal Weerasinghe put the same figure in a projection published the same morning, expecting inflation to stay near 8 per cent into the first quarter of 2027 before easing to 5 per cent.
The two accounts agree on the number and differ on the cause. The Governor attributes the elevated rate to energy and transport price shocks and expects base effects to resolve it; this analysis attributes a share of it to the tax structure, which base effects would not resolve. Neither is reported here as settled.
Not reported
The piece does not name or date the household survey behind the 25 per cent figure, or say who conducted it. It does not source the first-half GDP data to a named release, though the Department of Census and Statistics is the publisher of national accounts.
It does not quantify the comparison with other countries in text, give the composition of “net consumption taxes” (VAT, excise, levies), or state what rate he considers appropriate. It does not address the fiscal consolidation commitments under Sri Lanka’s IMF programme, which are the stated reason for the revenue measures he criticises.
On sourcing: this is a single bylined analysis carried by one verified newsroom, and is reported as such. No other verified newsroom had published the same argument when this was written. The Daily Mirror does not state whether the piece was commissioned or submitted.
