Sri Lanka's Finance Minister Unveils Government's Third Budget Aimed at Economic Recovery

The Third Budget of the current government, presented by President Anura Kumara Dissanayake in his capacity as Finance Minister, was unveiled in Parliament today. The budget outlines a strategic shift from economic stabilization to a transformative growth phase, with a focus on enhancing public sector salaries, tax relief, and substantial allocations for various development sectors.

Key tax reforms and relief for citizens are prominent features of this budget.

Tax relief threshold raised: The existing tax-free income limit has been increased from Rs. 150,000 to Rs. 162,500 per month. Consequently, individuals earning up to this amount will be completely exempt from income tax. The maximum tax rate threshold has been expanded from Rs. 358,000 to Rs. 433,000.

VAT exemption on educational materials: In a move to support the education sector, Value Added Tax (VAT) on textbooks, dictionaries, encyclopedias, children's storybooks, and exercise books has been entirely removed.

Reduction in essential food item taxes: To alleviate the financial burden on consumers, the Special Commodity Levy on imported rice (-Rs. 10 per kilo), flour (-Rs. 10 per kilo), and dried chili (-Rs. 50 per kilo) has been decreased. However, to protect local industries, the tax on imported sugar has been increased by Rs. 10 per kilo.

Increases in public sector wages, pensions, and allowances are part of the budget strategy.

Transportation allowance for executive officers: The monthly transportation allowance for executive personnel utilizing private vehicles for official duties has been doubled from Rs. 50,000 to Rs. 100,000. Additionally, the allowance for officials using electric vehicles has been raised by 150%.

Healthcare sector allowances: The Daily Allowance for medical professionals has been increased by Rs. 25,000, now ranging from Rs. 70,000 to Rs. 95,000. Special duty allowances for nurses and allied health professionals have been raised from Rs. 6,000 to Rs. 12,000, while allowances for other health staff have seen increments from Rs. 2,000 to Rs. 4,000. Notably, 50% of these increases are set to be disbursed starting July 2027, with the remaining in 2028.

Travel and office allowances for field officers: Monthly travel allowances for village officers are being increased to Rs. 4,000, along with office rental allowances for urban and local council officials rising to Rs. 6,000 and Rs. 4,000 respectively. Development, agricultural research assistants, and prosperity officers will also see their allowances enhanced.

Military, police, and prison officer allowances: The daily allowance for military personnel has been increased to Rs. 315 for officers and Rs. 332 for other ranks. Police officers will see a monthly increase of Rs. 10,000 for food and accommodation allowances, while the risk allowance for prison officers has been adjusted from Rs. 8,000 to Rs. 16,000, marking a 100% increase.

A special interim allowance for retirees: Public servants retiring between 2020 and 2024 will receive a monthly interim allowance of Rs. 2,500 from July 1, 2027, until the implementation of a new salary structure.

Education and social protection initiatives

Support for the needy: Rs. 230 billion has been earmarked for the social security programs designed to combat poverty, including monthly allowances for kidney disease patients and individuals with disabilities, which are set to increase from Rs. 10,000 to Rs. 12,500.

Training and student allowances: The monthly stipend for teacher trainees at universities has been enhanced from Rs. 10,500 to Rs. 20,000. Daily allowances for monk students will be raised to Rs. 50, and student allowances will increase to Rs. 25, while annual allowances for Dhamma school teachers now stand at Rs. 12,500.

Digitization of schools: A budget of Rs. 35 billion has been allocated for the digitization of the school system, including provincial council schools, to improve teacher capacity and infrastructure.

Major development and infrastructure projects

Rail electrification and transportation: A significant budget allocation of Rs. 80 billion has been set aside for the electrification of three main railway lines around Colombo, including the Kelani Valley Line, the Main Line, and the Coastal Line. Additionally, Rs. 5 billion is designated for acquiring 250 small buses for hilly and challenging routes, with another Rs. 5 billion for purchasing five new trains.

Expressways: Rs. 30 billion has been allocated for the Kurunegala-Galewela section of the Central Expressway, Rs. 27 billion for the Kahathuduwa-Ingiriya section of the Ruwanpura Expressway, and Rs. 53.45 billion to complete the Kadawatha-Mirigama section.

Water supply and housing: A provision of Rs. 77 billion has been made for the supply of clean drinking water, while assistance for housing for low-income beneficiaries has been increased from Rs. 10 million to Rs. 15 million under the "Own Space - Beautiful Life" program, amounting to Rs. 15 billion. Additionally, Rs. 10 billion has been allocated to support the resettlement of 13,000 families affected by the Northern-Eastern conflict over the next two years.

Agricultural and energy innovations

Fertilizer subsidies: An allocation of Rs. 44 billion is established to continuously provide a fertilizer subsidy of Rs. 30,000 per hectare for paddy and other crops.

Solar energy and green economy: Rs. 3.5 billion is set aside to offer assistance of Rs. 25,000 per kilowatt (up to a maximum of Rs. 250,000) to residential customers installing solar energy systems with batteries. Plans are in place to remove the port and airport development tax (PAL) imposed on solar energy batteries.