Sri Lanka's cabinet has given its approval to raise the Value Added Tax (VAT) from the current rate of 15% to 18%, effective from January 1, 2024, as announced by Transport Minister Bandula Gunawardana.

Although state tax revenue for the first nine months of 2023 increased by 51% compared to the same period in the previous year, the government has not met the tax collection targets agreed upon with the International Monetary Fund, according to a statement released by the cabinet. The new tax measures will take effect in 2024, including the imposition of taxes on all goods and services that were not previously subject to VAT.

Cabinet spokesman Bandula Gunawardana, who is also the Minister of Transport, expressed that the increase in public revenue to 1.7 trillion rupees (equivalent to $5.19 billion) during the first nine months of the year is only just enough to cover public sector salaries, welfare payments, and other recurring expenses. He acknowledged the financial challenges faced by the public and mentioned that despite their reluctance, they have no alternative but to raise taxes.

Gunawardana further noted that there is a possibility of introducing additional taxes in the upcoming budget, which is scheduled to be presented to parliament in mid-November. (Note: Exchange rate: $1 = 327.3500 Sri Lankan rupees)