Government revenue and grants rose by 27.1% year-on-year (YoY) to Rs. 2.956 trillion in the first half of 2026, achieving 55.8% of the Rs.5.3 trillion annual estimate, with motor vehicle-related collections propelling Sri Lanka Customs to become the largest contributor to tax revenue.
The performance was disclosed in the Fiscal Review Report January-June 2026 issued by the Finance, Planning and Economic Development Ministry’s Department of Fiscal Policy.
Total revenue, excluding grants, increased by 27% to Rs. 2,954.2 billion in the first six months from Rs. 2,321.7 billion in the corresponding period of 2025, mainly due to higher revenue collections from motor vehicles, according to the report.
Total revenue and grants amounted to Rs. 2,956 billion, up from Rs. 2,325.1 billion a year earlier. Against the Rs. 5,300 billion annual estimate, the Government had achieved 55.8% by end-June. Tax revenue rose by 25.9% to Rs. 2,710.6 billion, achieving 55.2% of the Rs. 4,910 billion annual estimate. Non-tax revenue increased by 43.6% to Rs.243.6 billion, equivalent to 67.7% of the Rs. 360 billion annual estimate. Grants fell by 46.4% to Rs.1.8 billion, or 6% of the Rs.30 billion annual estimate.
Income Tax accounted for 19% of actual revenue in 1H, taxes on goods and services 60%, taxes on external trade 13% and non-tax revenue 8%, according to the report.
Sri Lanka Customs emerged as the largest contributor to tax revenue during the first six months, collecting Rs. 1,290 billion and accounting for 48% of total tax revenue. The Inland Revenue Department (IRD) collected Rs. 1,248 billion and accounted for 46%, whilst the Excise Department was the third-largest contributor.
Customs achieved 58.5% of its Rs. 2,206 billion annual estimate by end-June, ahead of the IRD, which achieved 52% of its Rs. 2,401 billion target. The Excise Department collected Rs.138 billion, equivalent to 56.5% of its Rs. 245 billion annual estimate. Other collections amounted to Rs.35 billion, or 60.1% of the Rs.58 billion annual estimate.
Overall, the three agencies and other sources collected Rs. 2,711 billion in tax revenue during 1H against the Rs. 4,910 billion annual estimate, an achievement of 55.2%.
The Department of Fiscal Policy attributed Customs achieving nearly three-fifths of its annual estimate mainly to increased revenue collections from motor vehicles.
VAT on imports was Customs’ largest revenue component, increasing by 25% YoY to Rs. 443.7 billion from Rs. 354 billion in 1H 2025.
Excise Duty collected through Customs rose by 46% to Rs. 424.2 billion, with motor vehicles accounting for 63% of Customs Excise Duty during the period. Petroleum accounted for 23%, cigarettes 13% and other sources 1%.
Revenue from Excise Duty on motor vehicles more than doubled to Rs. 266.4 billion from Rs. 129.1 billion a year earlier, an increase of Rs. 137.2 billion.
Within overall Customs revenue, import VAT accounted for 34%, Excise Duty 33%, Import Duty 12%, Ports and Airports Development Levy (PAL) 7%, Special Commodity Levy (SCL) 7%, import SSCL 4% and CESS 3%.
The IRD collected Rs. 1,248 billion during the first six months, achieving 52% of its Rs. 2,401 billion annual estimate, with the Fiscal Review attributing the performance to VAT on domestic activities.
Income Tax revenue increased by 16% YoY to Rs. 568.4 billion from Rs. 488.5 billion.
VAT on domestic activities rose by 26% YoY, whilst revenue from the Social Security Contribution Levy (SSCL) on domestic activities increased by 15%.
Income Tax accounted for 45% of IRD collections during the period, whilst domestic VAT represented 44%, domestic SSCL 10% and other revenue 1%.
Within Income Tax, corporate Income Tax accounted for 55% of collections, individual Income Tax 27% and withholding tax 18%.
Overall VAT revenue, combining domestic and import collections, increased by 25% YoY to Rs. 987.6 billion from Rs. 787.3 billion in the corresponding period of 2025.
VAT was also the single largest major revenue source during 1H, with Rs. 987.6 billion collected against a Rs. 1,812 billion annual estimate, equivalent to about 55% of the full-year target.
The Excise Department collected Rs. 138 billion during 1H, achieving 56.5% of its Rs. 245 billion annual estimate.
Revenue from Excise Duty on liquor increased by 27% YoY to Rs. 137.5 billion from Rs. 108.2 billion in the corresponding period of 2025.
Liquor accounted for 99% of Excise Department collections during the period, with tobacco contributing the remaining 1%.
The revenue performance drove an improvement in the Government’s fiscal balances, with revenue growth substantially outpacing expenditure during the first half.
Total expenditure increased by 7.9% YoY to Rs. 2,946.5 billion from Rs.2,730.7 billion. This represented 39% of the Rs. 7,557 billion annual estimate.
Recurrent expenditure increased by 6.5% to Rs. 2,669.9 billion from Rs. 2,506.8 billion, reaching 45.7% of the Rs. 5,838 billion annual estimate.
Capital expenditure and net lending rose by 23.6% to Rs. 276.6 billion from Rs. 223.9 billion, but amounted to only 16.1% of the Rs. 1,719 billion annual estimate.
Interest payments declined by 2% to Rs. 1,234.6 billion from Rs. 1,264.6 billion a year earlier.
The combination of higher revenue and slower expenditure growth swung the nominal Budget balance to a Rs. 9.5 billion surplus in 1H 2026 from a Rs.405.6 billion deficit in the corresponding period of 2025.
The primary surplus increased by 45% to Rs. 1,244.1 billion from Rs. 859 billion a year earlier. The first-half primary surplus was more than three times the Rs. 360 billion primary surplus estimated for the full year, although the half-year position does not indicate the eventual year-end outturn.
The 2026 fiscal framework provides for a full-year Budget deficit of Rs. 2,257 billion.
The Department of Fiscal Policy attributed the turnaround in the Budget balance mainly to the 27% increase in Government revenue together with the rationalisation of Government expenditure.