Government tax revenue has depended on indirect taxes for the past several decades

Revenues from direct sources of taxation accounted for less than 25% of the Sri Lankan government’s tax revenues until its sovereign default in 2022. The Sri Lankan government has relied excessively on indirect sources of taxation, mainly taxes on foreign trade and taxes on goods and services.

After tax reforms were made post-default, direct taxes contributed to 33% of the government’s tax revenues, the highest recorded direct tax contribution in the country’s history. However by 2024, it declined to 28%. This is an indication of the regressive nature of Sri Lanka’s current tax system, which places an undue burden upon lower-income earners due to its heavy reliance on indirect taxes to generate revenue.

Data sources: Fiscal dashboard data