Tax policy, administration, and erosion of public trust

SRI Lanka’s ongoing struggle with “Corroding Interrelation” - the intricate link between economic crimes, human rights violations, and the pervasive challenge of accountability finds its battleground within a legal framework that is both aspirational in its international commitments and, paradoxically fragmented and limited in its domestic application.

- By Sheron Silva

The lack of domestic grounding has created a compliance paradox: the state adopts international terminology, yet the actual statutory mechanisms remain fragmented, allowing Politically Exposed Persons to exploit the distance between global standards and local enforcement. The recent economic crisis starkly revealed the human cost of this gap. The legal framework acts less as a deterrent and more as a fragmented shield, where it fails to address the deep-seated statutory breakdowns that facilitate state capture in Sri Lanka.

Governance and corruption vulnerabilities

Beyond the financial sector, the governance and corruption vulnerabilities inherent in Sri Lanka’s tax policy and administration represent a critical dimension of the “Corroding Interrelation”. Historically, Sri Lanka’s total tax revenue collections have been significantly below international averages, a situation that dramatically worsened following major tax cuts in 2020. While average collections in compara-tor groups hovered around 15% of GDP, Sri Lanka’s tax to GDP ratio plummeted to mere 7.5%. This severe erosion of the tax base directly undermines the State’s capacity to fund essential public services, thereby directly impinging upon economic and social rights such as access to healthcare, education, and social safety nets. Even in recent reversal or partial reversal of most of these tax cuts, securing sustained revenue generation requires more fundamental changes in the tax policy process.