Sri Lanka Tax Reform is urgently required to address the economic crisis and chronic underfunding of public education, Human Rights Watch warns. The government must adopt progressive policies to ensure adequate revenue and protect human rights.
Sri Lanka Tax Reform crucial to restore education and public services
Sri Lanka Tax Reform has become a critical issue following the 2022 economic crisis, which exposed deep flaws in the nation’s fiscal and public service systems. According to Human Rights Watch, decades of low corporate and personal tax revenues, combined with regressive reliance on indirect taxes, have undermined both economic stability and the funding of essential services like education.
The Human Rights Watch report, “Tax Giveaways, Struggling Schools,” highlights how successive governments prioritized tax incentives for companies and wealthy individuals while failing to maintain adequate public revenues. This policy approach contributed to Sri Lanka’s 2022 debt default and left the education system severely underfunded. Public spending on education dropped to just 1.5% of GDP, among the lowest in the world, drastically reducing access to quality schooling.
Experts note that Sri Lanka Tax Reform is essential to reverse these trends. Low revenues from personal and corporate taxes forced the government to rely heavily on indirect taxes, such as VAT, which disproportionately impact lower-income families. This has exacerbated economic inequality and limited opportunities for children from marginalized communities.
Human Rights Watch interviewed over 70 people, including education stakeholders and economic experts, to document the real-world impact of poor fiscal policies. Many families now struggle to pay for basic educational resources, tuition, and other school-related expenses, placing children at risk of falling behind academically.
The report highlights that the crisis worsened with the sweeping 2019 tax cuts introduced under former President Gotabaya Rajapaksa, which slashed government revenue further. Analysts trace the problem back to the late 1970s when Sri Lanka began liberalizing trade and deprioritizing social spending without introducing a progressive tax system to replace lost revenue.
Broad corporate tax exemptions, often administered opaquely, now cost the government a staggering 56% of total revenues—nearly three times the national education budget. Human Rights Watch calls for these exemptions to be reviewed and curtailed as part of Sri Lanka Tax Reform to restore fiscal balance and fund public services.
The economic fallout of inadequate taxation directly affected the 2022 crisis, leading to widespread job losses, income decline, and soaring living costs. While the IMF provided a $3 billion bailout in 2023, debt servicing continues to consume over half of government revenue. This fiscal pressure further limits resources available for essential services, including education.
Human Rights Watch recommends that Sri Lanka Tax Reform focus on establishing progressive taxation, including wealth and corporate taxes, while reducing reliance on regressive indirect taxes. The government should also strengthen tax enforcement and ensure transparency to maximize revenue collection.
Rebuilding public trust and ensuring children’s right to education requires increasing education spending to international standards, targeting 4–6% of GDP. The government’s limited steps, such as providing small bursaries, are insufficient to address structural funding gaps.
Sri Lanka’s experience illustrates a broader challenge faced by countries under international tax competition pressures. Tax incentives often fuel a race to the bottom, depriving governments of revenue needed to fund human rights obligations. Human Rights Watch underscores the importance of integrating human rights principles into fiscal policy, both domestically and through international cooperation.
In conclusion, Sri Lanka Tax Reform is essential to address systemic inequities, stabilize the economy, and restore adequate funding for education and public services. Progressive tax policies are key to ensuring that all Sri Lankans benefit from growth while protecting the country’s social and economic development.