Higher taxes and economic growth drive SL’s budget surplus

• Treasury records total revenue of Rs. 3,266.94 bn in first ten months, up 34.2% YoY
• Tax revenues stand at Rs. 3,000.25 bn, up 35.6% from the same period last year
• Primary surplus of Rs.831bn recorded, up from Rs.225bn in 2023 
• Overall budget deficit recorded at Rs.1,060.75 bn, down sharply from Rs.1,547.02 bn in the same period last year

Sri Lanka’s budget is getting into fine shape with substantially higher revenues made possible from higher taxes which are further supported by the robust recovery seen in the economy this year. This has helped to further narrow the overall deficit while putting the primary balance in surplus for the second year running.

According to the data available through October 2024, the treasury has recorded a total revenue of Rs. 3,266.94 billion in the first ten months, up by a robust 34.2 percent from the same period in 2023.

This was mainly coming from the higher tax revenues which were at Rs. 3,000.25 billion in the same period last year, up 35.6 percent.
2024 was the second full year of higher taxes when taxes from income to goods and services to profits were raised exponentially under the International Monetary Fund programme entered into in 2022 as a fix to the shortage of foreign currency which Sri Lanka underwent in that year.

Meanwhile, the 2024 tax income also consists of the 3 percent higher Value Added Taxes which was raised for the third time, effective from the beginning of this year.

As the Sri Lankan economy is making notable progress in both the external front as well as in the real economy, the new government in office provided tax concessions by way of raising the personal income tax threshold from the current Rs.100,000 a month to Rs.150,000 a month but doubled the withholding tax rate from 5 to 10 percent to pay for it.

Sri Lanka’s economy came to an abrupt halt in early 2022 precipitating into an all out social and political crisis as its foreign currency reserves ran dry mostly due to exogenous factors.

But the authorities found a fix to the issue by raising the interest rates and taxes exponentially, exacerbating the pain on large swaths of the population and businesses.

Now the economy is regaining footing as its foreign exchange inflows are getting restored and most of its foreign currency debt repayments suspended.

The primary balance of the budget, which excludes interest payments on debt, recorded a surplus of Rs.830.70 billion for the second consecutive year. This represents a significant increase from Rs.225.37 billion in the same period of 2023.

Meanwhile, the government’s total expenditure and lending minus repayments rose by a more modest 8.7 percent to 4,327.69 billion in the ten months.

The recurrent expenditure rose by only 7.5 percent to Rs.3,796.05 billion, while the capital expenditure & lending minus repayments rose by 18.5 percent to Rs.531.65 billion.

Under these circumstances, the overall budget deficit was recorded at Rs.1, 060.75 billion, down sharply from Rs.1,547.02 billion in the same period last year.

The government projected a budget deficit of Rs.2, 401 billion for 2024 excluding the Rs.450 billion allocated for bank recapitalisation, translating the deficit to 7.6 percent of the Gross Domestic Product (GDP).