Government revenue climbs by nearly 25% in 1H, driven by tax reforms and vehicle imports

• VAT collections grew by a significant 27.6% to reach Rs. 787.3 bn
• APIT payments rose 13.2% to Rs. 113.4 bn, while Personal Income Tax (PIT) collections jumped 37.4% to Rs. 30.7 bn
• Revenue from excise duty on motor vehicles skyrocketed by 335.6%, bringing in Rs. 129.1 bn

The government’s fiscal position strengthened significantly in the first half of 2025, with total revenue excluding grants climbing by 24.8 percent to Rs. 2,321.7 billion from Rs. 1,860.6 billion in the same period last year. 

This performance, which achieves 46.8 percent of the annual estimate for 2025, was overwhelmingly driven by a 25.9 percent surge in tax revenue. Tax collections reached Rs. 2,152.1 billion for the six-month period, a substantial increase from the Rs. 1,709.3 billion collected in the first half of 2024.

The robust performance is attributed to the full impact of ongoing, policy-driven fiscal consolidation measures and enhanced revenue administration. A revival of domestic economic activities and, crucially, the lifting of import restrictions—including the removal of the ban on vehicle imports—also provided a substantial boost to collections.

Value Added Tax (VAT) remained the largest single source of revenue, contributing 34 percent of the total tax haul. VAT collections grew by a significant 27.6 percent to reach Rs. 787.3 billion. This was supported by a 22.6 percent rise in domestic VAT to Rs. 433.4 billion, resulting from expanded economic activity and policy changes such as the VAT rate hike to 18 percent and a reduction in the registration threshold. Concurrently, VAT on imports jumped by 34.3 percent to Rs. 354.0 billion, directly reflecting the relaxation of motor vehicle import rules.

Revenue from income taxes, the second-largest contributor at 21 percent, posted a 9.2 percent increase to Rs. 488.5 billion. This growth was led by higher Corporate Income Tax (CIT) and Advanced Personal Income Tax (APIT) payments, supported by enhanced compliance measures. APIT payments rose 13.2 percent to Rs. 113.4 billion, while Personal Income Tax (PIT) collections jumped 37.4 percent to Rs. 30.7 billion. 

The PIT increase was supported by public sector salary revisions and higher private sector minimum wages. In a slight deviation, revenue from Withholding Tax on interest saw a marginal 1.2 percent decline to Rs. 86.1 billion, a change attributed to the series of interest rate cuts by the Central Bank.

The most dramatic growth was seen in Excise Duty, which surged by 41.4 percent overall to Rs. 399.2 billion. This was almost entirely driven by the lifting of import restrictions on motor vehicles effective from February 2025. Consequently, revenue from excise duty on motor vehicles skyrocketed by 335.6 percent, bringing in Rs. 129.1 billion in the first six months of 2025 compared to just Rs. 29.6 billion in the same period of 2024. Revenue from petroleum products also rose 15.5 percent to Rs. 112.0 billion, and liquor excise grew 9.2 percent to Rs. 108.2 billion. In contrast, revenue from cigarettes declined by 17.9 percent to Rs. 44.0 billion.

Taxes on external trade mirrored this trend, with revenue increasing by 36.8 percent to Rs. 298.4 billion. Customs Import Duty (CID) saw a 92.7 percent jump to Rs. 94.0 billion, also driven by the new 20 percent CID and 50 percent surcharge applied to motor vehicle imports. 

The Special Commodity Levy (SCL) rose 70.5 percent to Rs. 77.6 billion, boosted by rate increases on items like potatoes and onions, as well as salt and rice imports. Revenue from the Social Security Contribution Levy (SSCL) also grew by 18.7 percent to Rs. 141.6 billion.

Non-tax revenue also contributed to the positive fiscal picture, growing by 12.1 percent to Rs. 169.6 billion. This was mainly due to higher collections from interest income, fines, fees, and charges, as well as increased social security contributions. (NF)