Despite billions in tax revenue flowing into Government coffers, there remains a growing concern whether these funds are effectively driving sustainable development and public welfare, or merely sustaining recurrent expenditure and debt repayments.
Recent tax increases have raised living costs and reduced disposable incomes. Under former President Ranil Wickremesinghe, tax revenue rose by 16.21% early last year, driven by hikes on domestic goods, services, and international trade, but this sparked public dissatisfaction and inflation.
In response, President Anura Kumara Dissanayake introduced tax reforms aimed at easing the burden, lowering some rates and adjusting brackets for fairness. While these changes slowed tax revenue growth, non-tax revenue rose modestly, helping to moderate inflation and ease financial pressure.
Yet, the core issue remains: are taxpayers’ contributions being responsibly managed to benefit the public, or are they largely consumed by recurrent costs and debt, offering limited tangible returns to citizens?
Growing anger over tax burden
As public frustration continues to mount over the lack of visible development and essential services in the country, residents from various parts of Sri Lanka have begun to voice their concerns more openly.
Amidst ongoing economic challenges and promises of reform, many feel abandoned by the authorities.
Nalaka Perera, a long-time resident of Homagama, shared his frustration with The Sunday Morning, highlighting the daily struggles faced by ordinary citizens and questioning the effectiveness of Government initiatives.
He said: “We are completely disheartened. Every month we pay heavy taxes, yet we don’t see any return. Unlike in other countries, our public infrastructure is crumbling. There are no new roads being built, no visible development projects, nothing happening in the education sector, no new hospitals, and no noticeable improvements to the existing ones.
“Even basic services like garbage collection are a problem. Each household on our lane has to pay Rs. 200 out of its own pockets just to get the municipal council employees to collect our garbage. It’s absurd.
“Why should we continue to pay taxes if the Government keeps failing us like this? It has been six months now and we have seen no change. Take a walk around Colombo and look at the condition of the roads. Can anyone really rely on public transport in this country?
“I’m not naïve enough to expect miracles overnight, but at least if there was some visible effort to improve things, we could be patient. Right now, it feels like nothing is happening. I honestly don’t understand what the Government is doing with initiatives like Clean Sri Lanka,” he stated.
Nuwan Jayasinghe, a resident of Maharagama, also shared his frustrations: “Every day we hear about new Government plans and promises, but when you look around, nothing has changed. The roads are full of potholes, hospitals are overcrowded and lack basic facilities, and schools are in the same outdated condition they have been in for years. We pay taxes expecting at least some improvements, but it feels like our money just disappears.”
“Even simple services like garbage collection are irregular. We end up having to hire private collectors and pay extra just to keep our surroundings clean. On top of that, there are people earning millions through private practices and businesses who barely pay any taxes, while the Government squeezes the middle class dry. It’s disheartening. We’re not asking for luxuries, but just for the basics to work properly. Is that too much to expect?” he questioned.
More money for salaries and subsidies
In such a backdrop, as revealed in the ‘Report on Financial Performance of the Government Up to First Quarter Ending 31 March 2025,’ the total recurrent expenditure grew from Rs. 1,091.65 billion in 2024 to Rs. 1,226.55 billion this year – a notable increase of 12.36%. This increase was largely driven by rising costs in personal emoluments, subsidies, grants, transfers, and interest payments.
Within personal emoluments, spending rose from Rs. 168.23 billion to Rs. 182.99 billion, with salaries and wages increasing by over Rs. 2.6 billion. More striking, however, was a 25% jump in ‘other allowances,’ which surged by Rs. 17.36 billion.
Overtime and holiday payments, in contrast, remained largely stable. But what does this mean for taxpayers? Essentially, a larger share of their taxes is now channelled into Government payrolls and benefits. While fair remuneration for public servants is important, this raises concerns about whether taxpayer money is primarily funding the civil service machinery rather than delivering broad public value.
In addition, subsidies, grants, and transfers experienced one of the most significant increases, soaring by 33.83% from Rs. 244.41 billion in 2024 to Rs. 327.08 billion this year. This category, largely made up of welfare programmes and grants to provincial councils, grew by Rs. 29.58 billion and Rs. 38.49 billion, respectively. However, this rise in social spending also contributes heavily to recurrent costs, further limiting fiscal space for long-term investments.
Other goods and services, another key component of recurrent expenditure, increased modestly by 3.38%, from Rs. 81.78 billion to Rs. 84.54 billion. Within this category, fuel expenditure surged by 60.5% (Rs. 8.48 billion to Rs. 13.61 billion), reflecting possibly higher transport or energy costs.
Conversely, spending on medical supplies plunged by 44.8%, falling from Rs. 18.49 billion to Rs. 10.21 billion. Travel expenditures, especially domestic travel, halved and maintenance spending dropped by 24.2%.
A shrinking share of the pie
While recurrent expenditure climbed sharply, capital expenditure showed a worrying downward trend, dropping by 17.84% from Rs. 122.41 billion in 2024 to Rs. 100.57 billion this year. The most significant reduction occurred in infrastructure development, which fell by over Rs. 15 billion.
Expenditure on acquiring capital assets declined, though spending on rehabilitating and improving existing assets increased by 19.5%. This indicates a strategic pivot away from new investments towards maintaining the current asset base rather than expanding it.
For taxpayers, this trend signals a shrinking commitment to long-term development projects that create jobs, improve public services, and drive economic growth. Infrastructure projects are the backbone of sustainable development and their contraction raises concerns about future capacity and competitiveness.
Public debt repayments fell by 10.31%, from Rs. 262.91 billion to Rs. 235.82 billion. Both domestic and foreign debt repayments declined, possibly reflecting deferred payments or debt restructuring efforts.
Yet interest payments and discounts grew by 5.81%, from Rs. 597.20 billion to Rs. 631.92 billion. Notably, foreign debt interest payments surged by a staggering 141.6%, highlighting the escalating costs of external borrowing. On the other hand, discounts on Treasury bills and bonds fell by 25.43%.
Combining capital expenditure and public debt repayments, total capital-related spending declined by 12.7%, from Rs. 385.33 billion in 2024 to Rs. 336.39 billion in 2025.
On the revenue side, total receipts for the first quarter of 2025 rose by 14.46% to Rs. 1,064.66 billion from Rs. 930.15 billion the previous year. Tax revenue, the largest contributor, increased by 16.21%, driven by a 19.28% growth in domestic goods and services taxes, a 10.89% rise in income taxes, and a 14.32% increase in trade taxes.
Non-tax revenue and other receipts increased modestly by 4.76%, while capital revenue plummeted by 45.92%. Grant receipts inched up by just 3.77%.
Government expenditure rose by 5.82% during the quarter, reaching Rs. 1,562.95 billion, with recurrent expenditure accounting for the bulk of the increase at 12.36%. The surge in subsidies, grants, and transfers (33.82%) alongside rising salaries and other employment benefits (8.77%) points to growing operational commitments.
What does this mean for taxpayers?
As highlighted in the first quarter report, increasing tax revenue and social welfare spending indicates that the Government is mobilising resources to address social needs and maintain public sector employment.
On the other hand, the steep cuts in capital expenditure and rising debt servicing costs mean fewer investments in infrastructure, economic growth, and debt reduction – areas that yield long-term benefits to the public.
Effectively, a growing portion of taxpayers’ money is absorbed by recurrent expenses and interest payments, with less available for developmental projects that improve roads, schools, hospitals, and overall quality of life.
Responding to the growing questions regarding the country’s tax policy and efficient use of tax money, University of Peradeniya Department of Economics and Statistics Professor Ananda Jayawickreme highlighted the critical need for Sri Lanka to reform its tax collection system and public finance management in order to achieve fiscal stability and public trust.
“When it comes to government expenditure, generally, it tends to hover around 20% of a country’s Gross Domestic Product (GDP), whether it’s a developed or developing nation,” Prof. Jayawickreme explained. “Typically, government spending stays around 20-25% of GDP. In cases where governments are considered ‘large,’ expenditure rises above that threshold.”
He noted that ideally, if a government’s expenditure was around 20% of GDP, its tax revenue should match this figure to maintain a balanced budget. “Some countries, like Singapore, even run budget surpluses, meaning their revenue exceeds their expenditure. In such cases, there’s no major public finance issue because the surplus funds can be reinvested productively,” he added.
Addressing the question of whether taxes should be raised, Prof. Jayawickreme remarked: “Not necessarily. What’s important is that we collect taxes properly. The issue isn’t only about rates; it’s about inefficiencies in the system. The Government must examine why tax revenue has fallen so dramatically and address those root causes.”
He identified several contributing factors, including numerous tax exemptions, holidays, and preferential rates granted for investment promotion, some of which had been misused for personal or political gain. Alongside this, he pointed to serious shortcomings in tax collection and enforcement.
“For instance, only about 3% of tax-paying companies are audited annually by the Inland Revenue Department (IRD). Even within this small group, many are found to be underreporting income or evading taxes altogether. In some cases, companies declare their taxable income and calculate the taxes owed in their financial statements, but still fail to pay,” Prof. Jayawickreme noted.
He stressed the importance of strengthening tax administration and ensuring consistent, transparent application of tax laws. A significant issue, he noted, was that formal sector employees, whose incomes had been officially recorded, were taxed reliably, while many in the informal or cash economy, such as certain lawyers, doctors, tuition masters, and businessmen, managed to avoid taxes entirely.
“This imbalance discourages honest taxpayers. When people see others enjoying public services without contributing their fair share, it undermines the willingness of citizens to pay taxes. It incentivises tax evasion and pushes income into the informal sector,” he said.
Prof. Jayawickreme also highlighted concerns about corruption within tax authorities themselves. “Departments such as the IRD, Customs, and Excise are among the most corrupt institutions in the country. Some officials have accumulated unimaginable wealth far beyond their legitimate incomes,” he alleged.
Ultimately, he suggested that the Government should also aim to reduce its reliance on indirect taxes, which disproportionately affects ordinary citizens, and shift towards a fairer system based on direct taxes. “If the system is transparent, accountable, and fair, people will feel proud to pay taxes and be part of a society that progresses collectively.”
“People aren’t selfish; they have altruistic tendencies. They want to see their contributions making a difference, whether through better healthcare, education, infrastructure, or community welfare. If the Government clearly communicates how tax revenue is collected and spent, and ensures fairness and transparency in the system, tax compliance will improve naturally, without the need for heavy-handed enforcement,” Prof. Jayawickreme said.
Despite repeated attempts, The Sunday Morning was unable to obtain comments from Deputy Minister of Finance and Planning Dr. Harshana Suriyapperuma, Deputy Minister of Economic Development Dr. Anil Jayantha Fernando, and Treasury Secretary Mahinda Siriwardana.