Sri Lanka tax failures have fueled a worsening poverty crisis and eroded basic rights, according to a new Human Rights Watch (HRW) report. Decades of weak taxation and poor revenue policies have left millions struggling to access essential services.
Sri Lanka tax failures, weak revenue systems, and corporate breaks push millions into poverty, says HRW.
Sri Lanka’s chronic tax policy failures have intensified the country’s economic collapse and pushed millions into hardship, according to a new report released by Human Rights Watch (HRW). The organization states that inadequate taxation, excessive corporate incentives, and weak enforcement have deprived the government of critical funding for health, education, and social welfare, leading to widespread human suffering.
The report highlights that decades of poorly designed tax systems have left Sri Lanka with one of the lowest tax-to-GDP ratios in the world. In 2023, the country collected just 7.3 percent of its GDP in tax revenue. This has severely limited the state’s ability to invest in essential services, forcing vulnerable communities to shoulder the burden of an economic crisis not of their making.
Rising costs have compounded the problem. By September 2023, food prices had doubled, hitting low-income households the hardest. As the government began cutting energy subsidies to comply with its International Monetary Fund (IMF) bailout program, electricity and transport costs soared. For many families, these price hikes meant making impossible choices between survival needs.
The HRW report documents the story of Susikala, a mother of two, whose five-year-old son missed school for three months because the family couldn’t afford transportation. Her daughter walked two kilometres to get to class to save bus fare, and their electricity was eventually disconnected after unpaid bills piled up. This personal account reflects the lived reality of many Sri Lankan families caught in the grip of austerity and inadequate public support.
Education has been among the hardest-hit sectors. With state funding plummeting, schools have resorted to collecting money from parents to cover even basic costs like exam paper and maintenance. This has widened inequality, making education less accessible to children from low-income families and undermining long-term development goals.
HRW warns that Sri Lanka’s tax structure is “inadequate and regressive”, relying heavily on indirect taxes such as VAT, which disproportionately affect poorer households. Meanwhile, corporations continue to benefit from generous tax holidays and exemptions that cost the government billions in potential revenue. This imbalance, the organization argues, has worsened economic inequality and eroded citizens’ rights to health, education, and adequate living standards.
The report also calls out decades of successive governments for neglecting progressive fiscal reforms. By prioritizing short-term political interests and corporate incentives, the state has failed to mobilize sufficient resources to protect its most vulnerable populations. The lack of fiscal transparency has further undermined public trust in governance and accountability.
In a direct appeal to President Anura Kumara Dissanayake, elected in 2024, HRW urges immediate action to reverse the trend. The organization recommends increasing taxes on income and wealth, phasing out unjustified corporate tax incentives, and ensuring stronger tax collection mechanisms. It also emphasizes the importance of transparency in how public funds are used, particularly for essential services like education and healthcare.
“All governments, including Sri Lanka, are obligated under international law to mobilize maximum available resources to fulfil citizens’ economic and social rights,” HRW stated. “Sri Lanka’s failure to do so has had disastrous human rights consequences.”
Fiscal policy experts argue that rebuilding the tax system is not just an economic imperative but also a matter of justice and rights. Progressive taxation could help redistribute wealth more fairly and ensure adequate investment in essential services. With millions living below the poverty line, reforms could provide critical relief and strengthen the nation’s social safety net.
The HRW report concludes that Sri Lanka stands at a pivotal crossroads. Without urgent and progressive tax reform, poverty and inequality will deepen, further weakening the country’s recovery prospects. By addressing systemic tax failures, the government could not only stabilize its finances but also rebuild public trust and protect the fundamental rights of its citizens.