Budget surplus hits Rs. 105 b as vehicle-related taxes drive revenue surge, highlighting a significant strengthening of Sri Lanka’s fiscal position during the first four months of 2026 as higher tax collections and lower interest costs supported the Government’s fiscal consolidation efforts.
Budget surplus hits Rs. 105 b as vehicle-related taxes boost government finances
Sri Lanka recorded a Budget surplus of Rs. 105 billion during the January-April 2026 period, a notable turnaround from the Rs. 261.6 billion deficit reported during the corresponding period last year. The improvement was primarily driven by a sharp increase in government revenue, particularly from taxes associated with the resumption of motor vehicle imports.
According to the latest Fiscal Review Report issued by the Department of Fiscal Policy of the Finance Ministry, total revenue and grants rose by 34.6 percent year-on-year to Rs. 1.958 trillion, compared to Rs. 1.455 trillion recorded during the same period in 2025. This growth significantly outpaced the 8 percent increase in government expenditure, which reached Rs. 1.853 trillion.
The stronger revenue performance also contributed to a substantial increase in the primary surplus, which expanded to Rs. 862.7 billion from Rs. 532.7 billion a year earlier. The outcome reflects continued progress in restoring fiscal stability and improving public finances following recent economic reforms.
A key driver of the improved performance was the strong contribution from import-related taxes. Sri Lanka Customs emerged as the largest revenue-collecting agency during the period, accounting for Rs. 876 billion, or 49 percent of total tax revenue. This surpassed collections by the Inland Revenue Department (IRD), which generated Rs. 780 billion, representing 44 percent of total tax revenue. The Excise Department contributed Rs. 97 billion.
The report highlighted that the reopening of vehicle imports played a major role in boosting government revenue. Revenue from excise duties on motor vehicles surged to Rs. 187.1 billion during the first four months of the year, compared to Rs. 53.2 billion during the corresponding period of 2025. This represented an increase of Rs. 133.9 billion.
Similarly, revenue from Value Added Tax (VAT) on imports increased by 35 percent to Rs. 299.9 billion from Rs. 222.6 billion a year earlier. Overall excise duty collections through Customs rose by Rs. 128.3 billion to reach Rs. 294.4 billion.
The strong performance enabled vehicle-related taxes to become one of the most important contributors to fiscal revenue growth during the period. Customs achieved 39.7 percent of its annual revenue target within the first four months of the year, largely due to the increased taxation of imported vehicles.
Overall tax revenue increased by 31.7 percent to Rs. 1.777 trillion from Rs. 1.349 trillion a year earlier, accounting for approximately 91 percent of total government revenue. Non-tax revenue recorded even stronger growth of 73.3 percent, rising to Rs. 180.6 billion from Rs. 104.2 billion. Government grants amounted to Rs. 0.8 billion.
Taxes on goods and services remained the largest source of revenue, generating Rs. 1.214 trillion and accounting for 62 percent of total revenue. Within this category, VAT contributed Rs. 677.4 billion, excise taxes generated Rs. 391.8 billion, and the Social Security Contribution Levy (SSCL) contributed Rs. 113.3 billion.
The Inland Revenue Department also benefited from stronger domestic economic activity. Revenue from VAT on domestic transactions increased by 26 percent, while SSCL collections from domestic activities rose by 15 percent compared to the previous year. Income tax revenue increased by 13.2 percent to Rs. 310.2 billion, while taxes on external trade rose by 30.4 percent to Rs. 253 billion.
The Finance Ministry noted that the broader economy continued its recovery trajectory, with GDP expanding by 5 percent in both 2024 and 2025. Economic growth has supported revenue mobilisation efforts and strengthened government finances.
On the expenditure side, recurrent expenditure increased by 5.1 percent to Rs. 1.685 trillion. Interest payments remained the largest expenditure category, accounting for roughly half of recurrent spending. However, total interest payments declined by 4.6 percent to Rs. 757.7 billion, providing additional support for the expanding primary surplus.
Capital expenditure and net lending increased by 49.3 percent to Rs. 168.6 billion from Rs. 112.9 billion a year earlier. Despite this improvement, capital spending remained below planned levels, with only 9.8 percent of the annual allocation utilized by the end of April.
The January-April fiscal outturn indicates that the Government has already achieved 36.9 percent of its full-year revenue target of Rs. 5.3 trillion and 36.2 percent of its tax revenue target. The figures underscore the strength of revenue collection so far in 2026 and highlight the significant contribution made by vehicle imports, domestic tax growth, and lower debt-servicing costs to Sri Lanka’s improving fiscal position.