CA Sri Lanka has submitted a comprehensive set of proposals for Sri Lanka’s National Budget 2027, calling for a shift away from repeated tax-rate increases towards stronger compliance, digitalisation, better tax administration and a broader tax base.
The 16-page proposal was submitted to the Ministry of Finance on 7 September 2026 following consultations with members and discussions at the 5th Annual Economic and Tax Symposium.
Moving beyond repeated tax hikes
CA Sri Lanka argues that additional revenue should first be generated by improving compliance with existing taxes, identifying currently untaxed economic activity, reducing revenue leakages and using better data. Reviewing tax exemptions and increasing statutory tax rates would come later in its proposed revenue-mobilisation hierarchy.
The Institute also highlighted the imbalance between indirect and income taxation. In 2025, indirect taxes represented approximately 11.9% of GDP, compared with 3.5% from income taxes, according to the proposals.
A more connected digital tax system
One of the major recommendations is the development of an integrated taxpayer information ecosystem connecting the National Taxpayer Information Network (NTIN) and Universal Business Identification Number (UBIN) with information from Customs, VAT transactions, corporate ownership, financial accounts and property records.
CA Sri Lanka also proposes progressively introducing electronic invoicing and improving data sharing between government agencies.
Using AI to identify compliance risks
The proposals call for a move towards a formal Compliance Risk Management framework.
CA Sri Lanka proposes an AI-assisted Tax Compliance Risk Engine that could help identify potential high-risk cases, including shell companies, unexplained wealth, circular transactions and VAT fraud. The proposed system would be used for risk identification and case selection rather than determining tax liability itself.
Proposed relief for middle-income earners
CA Sri Lanka has proposed increasing the Advance Personal Income Tax (APIT) threshold to Rs. 200,000 per month.
The Institute estimates that this could reduce revenue by approximately Rs. 26.01 billion compared with the 2026 baseline, while the reduction compared with 2025 actual revenue is estimated at Rs. 79.08 billion. CA Sri Lanka argues that the potential economic benefits, including increased disposable income and economic activity, should also be considered.
A tiered tax framework for SMEs
Another major proposal is a tiered corporate tax framework based on annual turnover:
- Micro: Up to Rs. 20 million
- Small: Up to Rs. 350 million
- Medium: Up to Rs. 1 billion
- Large: Above Rs. 1 billion
The proposal also calls for proportionate compliance requirements, including simplified records for micro businesses and progressively standardised digital reporting for larger SMEs.
Stronger taxpayer rights
CA Sri Lanka has also proposed an Independent Taxpayer Ombudsman, a statutory Right to Self-Correction, and a Tax Administration Service Charter covering fairness, timeliness, communication and advance notice of compliance requirements.
The proposals further call for improvements to the Inland Revenue Department, including filling senior-level vacancies and recruiting specialised professionals such as data scientists and digital analysts.
The broader objective
The proposals present a model in which Sri Lanka’s revenue growth would increasingly come from better compliance, stronger data, digitalisation and formalisation, rather than relying predominantly on higher statutory tax rates.
CA Sri Lanka has also called for major tax and revenue proposals to undergo formal Revenue Impact Assessments before being considered for inclusion in the National Budget.
The Budget 2027 proposals therefore place tax administration, digital transformation, taxpayer rights and SME formalisation at the centre of the next phase of fiscal reform.
Source: Daily Mirror / CA Sri Lanka — Budget 2027 proposals.