Greening the tax system

SRI Lanka stands at a critical moment in its economic and environmental journey.

- By Dr. Nadee Dissanayake

While efforts continue to stabilise public finances and restore investor confidence, the country faces an urgent and growing threat: climate risks that strain agriculture, water resources, coastal areas, infrastructure, and public health.The recent devastation caused by Cyclone Ditwah which brought severe flooding, landslides, and widespread displacement has made these stakes unmistakably clear. The disaster exposed vulnerabilities across critical sectors and demonstrated how climate shocks can magnify economic pressures. In this context, fiscal tools that both reduce environmental harm and finance resilience, such as green taxation, are not just desirable but essential.

Green taxation is more than an environmental policy; it is a strategic instrument that can strengthen fiscal resilience, reshape behaviour, and protect communities against future climate crises. By linking revenue generation to climate-conscious incentives, governments can address immediate recovery needs while laying the groundwork for sustainable long-term development. Although still relatively new in Sri Lanka, green taxation has become central in many advanced and emerging economies. It enables governments to price environmental harm, reward sustainable choices, and support strategic investments in cleaner technology. As Sri Lanka seeks to meet global climate commitments and national sustainability goals, now is the time to explore how green taxation can be adapted to local realities and what lessons can be drawn from countries that have already implemented such measures successfully.