Sri Lanka banks have presented a comprehensive set of proposals for inclusion in the 2026 National Budget. The recommendations focus on supporting SMEs, advancing digital finance, and enhancing investment opportunities.
Sri Lanka banks outline reforms and incentives to boost SMEs, digital finance, and growth.
The Sri Lanka Banks’ Association (SLBA) recently submitted its proposals to Deputy Minister of Finance Anil Fernando, highlighting key measures aimed at strengthening the banking sector and promoting economic growth. Among the suggestions are targeted credit guarantee schemes to revive distressed enterprises and accelerated tax deductibility for impairment provisions to encourage corporate restructuring. The SLBA also called for aligning banking sector taxation with regional benchmarks, noting that current rates—53% for domestic banks and 65% for foreign banks—hinder competitiveness and capital formation.
The SLBA emphasized the importance of formalizing small and medium enterprises (SMEs) through mandatory VAT registration, subsidized accounting software, SME-focused business accounts, and financial literacy programs. Proposals also included mandatory Taxpayer Identification Numbers for all new accounts and incentives for SMEs to digitize transactions, helping broaden the tax net through digital adoption and proxy data such as utility and vehicle records.
To improve liquidity and revenue collection, the SLBA suggested simplifying compliance by treating withholding tax as a final tax, even at higher rates. Investments in digital infrastructure were recommended, including the creation of a national cloud framework to serve both public and private stakeholders, as well as tax incentives for fintech startups and local payment gateways. The association also stressed the need to level the playing field by applying VAT on global digital services while capping large cash payments and mandating electronic settlements of supplier, tax, and utility bills.
The proposals further advocated for a public-private initiative on cybersecurity to reduce compliance costs and safeguard systemic resilience. Restructuring of SriLankan Airlines was highlighted as a priority to enhance the country’s sovereign rating and attract foreign direct investment. Additionally, measures such as regional one-stop shops for regulatory approvals, reforms to facilitate Port City investments, and tax incentives for corporate bond issuance were recommended.
To promote sustainable growth, the SLBA proposed tax exemptions for green lending, tax-free green bonds, and public-private partnership bonds for infrastructure funding. Closer collaboration between the government, regulators, and the financial sector was urged to implement structural reforms, alongside sectoral initiatives like long-term funding for tea replanting and agricultural mechanization.