Sri Lanka’s indirect taxes are “super high” and the tax structure needs to change, but the government has taken no decision to introduce a property tax and will spring no surprises, Labour Minister and Deputy Minister of Finance and Planning Dr. Anil Jayantha Fernando said.

He was answering a question at the Institutional Investor Forum, held jointly by the Securities and Exchange Commission and the Colombo Stock Exchange on Tuesday, two weeks before the 2027 Budget is presented on 12 November, the Daily Mirror reported.

Revenue is ahead of target by five years

Fernando said government revenue reached 16.7 per cent of GDP at the end of 2025 — 1.3 percentage points above the 15.4 per cent originally targeted for 2030. He expects it to reach around 18 per cent by 2030, which he said would create fiscal space for public investment.

Once revenue reaches that level, he indicated, indirect taxes could come down. He described the 18 per cent VAT rate as relatively high but said it cannot be cut at this stage without damaging revenue mobilisation. Future changes, he said, would follow principles of fairness, simplicity and convenience.

He also warned against treating a tax reset as costless: “If that is gone, again the economy would be in real trouble,” he said of fiscal consolidation.

The property tax has been proposed, deferred and replaced

On property, Fernando said the measure had originally been proposed under the economic recovery programme but the government had run into obstacles and concerns over its impact. “We are not going to do something unless it is clear, especially in tax policies… We have not taken a decision to implement.”

The remarks track President Anura Kumara Dissanayake, who said last month the 2027 Budget would carry no property tax, on the argument that property is built from already-taxed earnings.

A nationwide property tax was among the revenue measures agreed under the 2023 IMF programme. It was replaced by a proposed imputed rental income tax targeted for April 2025, which was dropped after the November 2024 general election. The Daily Mirror reports the IMF has since pushed for a tax on secondary residential properties in the 2027 Budget, while the government maintains its planned measures are sufficient.

Context

Fernando spoke at the same forum where he described reform bills as stalled at the Legal Draftsman’s Department, and where Central Bank Governor Nandalal Weerasinghe addressed the inflation risk from higher oil prices.

Not reported: the filing does not say what the tax structure would change to, gives no timetable for reducing indirect taxes, and does not state the government’s response to the IMF’s reported push for a secondary-residence tax. No second verified newsroom had filed on these particular remarks at the time of writing.