VAT to drive one-third of govt.’s Rs.922bn revenue increase in 2025

By Nuzla Rizkiya

Nearly one-third of a Rs.922 billion rise in the government’s revenue projection for 2025 is expected to be driven by the value added tax (VAT), an analysis conducted by local analytics platform PublicFinance.lk showed.

The platform noted that the approved budget estimates indicate the total government revenue, excluding the provincial council revenue and grants, is set to reach Rs.5,012 billion in 2025, reflecting a 23 percent increase from Rs.4,090 billion recorded in 2024.

As per the Treasury projections, the total government revenue, including the tax revenue, non-tax revenue and grants, is estimated at Rs.5,125.96 billion, with the tax revenue alone contributing Rs.5,012.4 billion. 

The provincial council revenue is projected at Rs.83.56 billion, while grants, both foreign and domestic, are expected to bring in Rs.30 billion.

“The VAT revenue is projected to rise by Rs.305 billion in 2025, driving one-third of the total increase (the Rs.922 billion rise) in the government revenue. It is the single largest revenue source, contributing 32 percent of the government’s total revenue,” PublicFinance.lk stated.

According to the platform’s breakdown, the VAT on imports is expected to generate Rs.193 billion while the excise (special provisions) duty is forecasted to bring in Rs.215 billion, mainly driven by the motor vehicle duties, which alone are anticipated to contribute Rs.171 billion.

Additionally, the taxes on international trade and income tax are set to increase, adding Rs.174 billion and Rs.141 billion, respectively. 

The other taxes and levies will contribute Rs.51 billion, while the non-tax revenue is projected at Rs.37 billion. Meanwhile, the government anticipates an economic growth rate of 5 percent in 2025.  The total tax revenue is expected to reach 13.9 percent of GDP, while the overall revenue is estimated at 15 percent of GDP.  The revenue from the export of goods and services is projected at Rs.19 billion, with the capital expenditure accounting for 4 percent of GDP.  The primary surplus is estimated at 2.3 percent of GDP, while the budget deficit is forecasted at 6.7 percent of GDP.