The Hon. Anura Kumara Dissanayake

¶ 01 29.2 Development of airport operations efficiency (Air Cargo Hub)

¶ 02 Taking into account the economic collapse and other factors, the second phase of the airport development project that was abandoned midway will commence construction in early 2026. Japan’s JICA had earlier expressed willingness to provide financing; we know why they withdrew, and even the Ambassador publicly explained. What was the loss? Our estimate then was to complete it in 2023 with Rs. 106 billion for the second phase at Katunayake. Due to ministerial interference, the agency withdrew. Now the estimate is around Rs. 204 billion — about a 91% increase. Who takes responsibility? This country had an ugly political culture. The outcomes: increased financing requirements, and even today we still do not see efficiency at the airport. Private-sector tourism operators have voluntarily agreed to open 12 temporary counters via a marquee, as tourist arrivals are growing. If the project had finished in 2023, how beneficial would it be today? Now we are temporarily adding 12 new counters via a marquee through the private sector because the government procurement process cannot deliver in time.

¶ 03 With the ongoing expansion of SriLankan Airlines’ cargo terminal and improvements including cargo handling facilities, Bandaranaike International Airport is moving towards becoming a regional air cargo hub.

¶ 04 However, due to deficiencies in the cold chain system, inadequate warehouse capacity, and outdated systems, we will adopt a Public-Private Partnership model to provide advanced facilities such as cold storage to the new cargo terminal, to unlock the full potential of the air cargo segment, ensure operational efficiency, and strengthen financial sustainability.

¶ 05 30. A new approach to urban development

¶ 06 - In the past, urban development projects were implemented haphazardly, without proper studies or prioritization, and thus failed to deliver expected outcomes. From 2026, the urban development process will proceed under proper planning and studies, to establish an efficient, sustainable, tourism- and investment-attractive urban system. For 10 identified towns across the country including Jaffna, Eheliyagoda, Batticaloa, Puttalam, and Matara, Rs. 2,000 million is set aside to commence preliminary feasibility activities, to be released based on need and progress. Once plans are prepared and requests made based on needs, the Treasury will allocate funds.

¶ 07 - Matale: To reduce current congestion when entering the city, we will widen to four lanes, acquire necessary land, and prepare the urban plan. Currently two approach roads still funnel into a single narrow entry, causing severe congestion; hence the need to widen to four lanes with requisite planning and land acquisition.

¶ 08 - Hatton: The city is effectively one-way with a single narrow passage even running through a shed; it is not functioning as a proper town. We will prepare a city plan during 2026 and provide short-term urgent solutions to reduce prevailing congestion. Rs. 500 million is proposed for this purpose.

¶ 09 - Ratnapura: Special attention will be given to relocate dilapidated scattered government official quarters from the old city to the new urban area. These are in commercial-value land parcels totaling about 20 acres. Relocation will help meet long-term housing needs. Rs. 500 million is proposed under the UDA. Moving these residences will free about 20 acres in the commercial city, economically advantageous.

¶ 10 30.1 Waste management facilities for Local Authorities

¶ 11 With rising urbanization, structured solid waste management has become a major challenge for local authorities. Improper dumping causes environmental and health effects and public grievances.

¶ 12 As a response, the 2026 Budget proposes funding to provide environment-friendly, cost-effective, and hygienic solid-waste transport equipment such as compactors, tractors, and trailers to local authorities. Using savings from 2025 capital expenditure, Rs. 8,000 million has been allocated and procurement has commenced to purchase 700 units. We called all local authorities through the Ministry of Provincial Councils and Local Government to assess needs; the list of 700 items is prepared and procurement is underway.

¶ 13 Accordingly, Rs. 900 million is allocated under the Ministry of Public Administration, Provincial Councils and Local Government for implementing solid waste management, including vehicles and equipment for disposal and O&M.

¶ 14 30.2 Meeting Local Authority expenditures (local development)

¶ 15 Local authorities, though autonomous, now depend on the Treasury to pay salaries. Instead of the current practice of providing allocations after reducing 20% or 40% from estimates, we propose a new method based on a recent study by the Ministry of Public Administration, Provincial Councils and Local Government, considering each local authority’s revenue and actual expenditures, to provide structured state support. Where a local authority faces a budget deficit, capital grants will be provided to close gaps — not perpetually; they must become self-sustaining over time.

¶ 16 Rs. 2,500 million is allocated in 2026 to strengthen local authorities, improve infrastructure, and support revenue-generating programs, with readiness to provide additional support if needed.

¶ 17 30.3 Services and facilities for care of street dogs and burial/cremation of dead pets

¶ 18 With changing lifestyles in urban and semi-urban areas, pet ownership is rising, creating demand for dignified, environmentally sound options for burial/cremation of deceased pets, and for humane management of street dogs. As an initial step, Rs. 100 million is proposed for pilot projects in Kesbewa and Piliyandala local authorities to support pet burial/cremation services and street animal care.

¶ 19 31. A safe home for every person

¶ 20 “Shelter for the head is peace for the heart.” Adequate housing is a basic human right, yet many suffer lifelong for a home. We begin a program to realize the dream of a home, addressing causes such as poverty, inadequate income, lack of land, rising construction costs, migration, unplanned urbanization, displacement, and natural disasters. From 2026, under a new approach we expect to complete 27,000 new houses, including those under construction.

¶ 21 31.1 Addressing housing issues of low-income and urbanizing populations

¶ 22 - From next year, we will implement the “Their Own Place – A Beautiful Life” housing program to build 70,000 houses in the medium term. For 2026, in addition to Rs. 7,200 million already allocated to build 10,000 houses, a further Rs. 3,000 million will be allocated (total Rs. 10,200 million). With about Rs. 1 million per village as a grant, together with citizen participation, houses can be built. This year the program performed well; for example, at Divulapitiya PS, 3,500 houses were completed.

¶ 23 - Under the Urban Regeneration Project for identified underserved settlements in Colombo and suburbs (Applewatte, Madampitiya, Ferguson’s Road, Obeysekarapura, Stadiumgama, Kolonnawa Marsh area, and Torrington area), Rs. 15,000 million is allocated in 2026 to complete housing complexes that have stalled.

¶ 24 - Under Chinese assistance, 1,996 houses at Moratuwa, Peliyagoda, Dematagoda, Maharagama and Kottawa are under construction, with Rs. 6,500 million already allocated. A portion will be allocated to media workers and artists.

¶ 25 - For old government-built apartment complexes in dilapidated condition, Rs. 1,180 million is allocated for rehabilitation.

¶ 26 - To remove unauthorized occupants blocking Kelani Valley railway development, Rs. 840 million is allocated for relocation.

¶ 27 31.2 Housing for estate communities

¶ 28 With Government of India support, Rs. 4,290 million will build 2,000 houses and improve infrastructure for estate worker communities in Central, Uva, Sabaragamuwa, North Western, and Southern Provinces. In addition, Rs. 1,305 million is allocated to complete 943 houses under construction in Northern and Southern Provinces within this year.

¶ 29 31.3 Housing for those displaced by natural disasters

¶ 30 About 9,000 rural and estate-adjacent families live in landslide- or environmentally-risky areas. Over the next three years, safe housing is necessary. For this year’s 1,200 houses, in addition to Rs. 1,000 million already allocated, a further Rs. 2,000 million is proposed (total Rs. 3,000 million). Some may require new land parcels and grants exceeding Rs. 2.5 million per house; medium-term target is 9,000 houses.

¶ 31 31.4 Housing for conflict-displaced communities

¶ 32 For families in Northern and Eastern Provinces with no shelter due to the war, the allocation of Rs. 3,850 million is increased to Rs. 5,000 million to build 2,500 houses, with grants of Rs. 2 million per house.

¶ 33 31.5 Housing support for reintegration and child protection

¶ 34 In 2025 we launched a special program to grant support enabling youth raised in child care institutions to secure safe, permanent homes. Strengthening this, we propose grants up to Rs. 2 million to those who have lived in care homes at any stage and reintegrated, and to families identified by the National Child Protection Authority as having children at risk, for land purchase and house construction, building on owned land, or rehabilitation of existing homes. Rs. 2,000 million is allocated.

¶ 35 32. Modernizing the public service

¶ 36 We need a strong public service to achieve economic, social, and cultural goals. However, today’s public service bears a high cost with politicized recruitments, institutions whose mandates have ended, and duplicative bodies. We will assess essential services, close institutions whose tasks are over, consolidate overlapping agencies, and reorganize according to new objectives. Work has begun to close 33 institutions performing no commercial, regulatory, or administrative function; others misaligned with current context are identified for closure.

¶ 37 We will address legal impediments that delay closures. A unit has been set up under the Ministry of Finance to resolve issues and expedite decisions. A committee under the Prime Minister has reviewed and Cabinet has reported: 21 non-commercial institutions will be consolidated by function; 14 research institutions will be integrated into a single national-level body; 9 non-commercial entities will be converted to financially autonomous institutions; and 13 institutions will be discontinued as their original purposes are no longer necessary.

¶ 38 32.1 Regularizing recruitments

¶ 39 For years, vacancies were not properly filled, leaving the machinery weakened. After a structured review by the committee on recruitments and cadre management under the Prime Minister, approval has been granted to recruit about 75,000 staff through proper procedures to essential posts (technical officers, law enforcement, revenue officers, etc.). Going forward, all recruitments and promotions will be strictly via exams and service rules, free from political interference.

¶ 40 32.2 Enhancing digital access in government

¶ 41 We will simplify complex public-facing processes via Business Process Reengineering and provide services digitally. In addition to existing allocations for the Digital Blueprint, Rs. 1,000 million is proposed to upgrade hardware and software across agencies whose computers and systems are obsolete.

¶ 42 32.3 Vehicles and machinery for government and local authorities

¶ 43 Due to inadequate and aging vehicle/machinery fleets, repair costs have escalated (e.g., Rs. 7 bn in 2015; Rs. 18 bn in 2020; Rs. 25 bn in 2025). We will procure a limited number of essential vehicles and equipment for agencies and provide a cab for each MP on a return-at-end-of-term basis; no permits will be issued. Tenders have been opened and a suitable cab model selected; with full insurance and fuel allowance per existing entitlements. Rs. 12,500 million is proposed for initial procurement.

¶ 44 32.4 Clearing statutory payment arrears in SOEs

¶ 45 Many SOEs, used for political hiring and run without discipline, owe banks, and have arrears of EPF/ETF, gratuity, and taxes. We have identified 10 SOEs — Lanka Sugar Company (Pvt) Ltd, Janatha Estate Development Board, Sri Lanka State Plantations Corporation, Sri Lanka Rupavahini Corporation, Ceylon Fisheries Corporation, National Livestock Development Board, Elkaduwa Plantations Ltd, Sri Lanka Broadcasting Corporation, North Sea Ltd, and Lanka Boatyard/Boatbuilding conglomerate — which require Rs. 11,000 million to clear employee benefit arrears and statutory dues. We propose to phase payments, with Rs. 5,000 million in 2026 to first settle gratuity of those who already left and regularize EPF/ETF and retirees’ entitlements, while restructuring balance-sheet obligations.

¶ 46 32.5 Releasing Treasury guarantees and comfort letters

¶ 47 Treasury guarantees/comfort letters were issued for SOE borrowings; due to long-term losses they are now in default, creating risks to banks and the Treasury. We will clear all such obligations that become inactive by 31.12.2026 within this year.

¶ 48 32.6 Settling government contributions for senior citizens’ bonus interest

¶ 49 The announced additional ~15% interest on senior citizens’ deposits in 2022–2023 was not fully reimbursed to banks; arrears total Rs. 55,700 million. We have already paid Rs. 10,000 million in 2025 and will pay the balance Rs. 45,700 million within this year.

¶ 50 33. Public sector salaries and pensions

¶ 51 33.1 Establishing a Salaries and Pensions Commission

¶ 52 We have already increased salaries and pensions. To manage policy sustainably and address longstanding anomalies, we propose to establish a Salaries and Pensions Commission. After implementing current allocations within fiscal limits, further solutions will follow based on the Commission’s study.

¶ 53 33.2 Amending appointment letters on contributory pension eligibility

¶ 54 Since 01.01.2016, letters of appointment stated no eligibility for the existing pension. In practice this is not workable. We will remove the clause from appointment letters and confirm their eligibility under the prevailing pension scheme.

¶ 55 33.3 Second phase of public sector salary increase

¶ 56 In line with the 2025 revisions, Rs. 110 billion is allocated to implement the second tranche from January 2026 salaries. This implies Rs. 110 bn each in 2025, 2026, and 2027 — totaling Rs. 330 bn embedded in the 2027 budget baseline. Given these fiscal bounds, other allowances and anomalies will be considered prudently and with time.

¶ 57 33.4 Second phase of rectifying pre-2020 pensioner anomalies

¶ 58 Pensions of those retired before 2020 will be revised based on the 2019 pay structure. Rs. 20,000 million is allocated to start payments from July 2026. The first phase began in July 2025; the second phase follows after one year.

¶ 59 33.5 Concessionary-interest housing/property loans for public servants

¶ 60 We will reactivate the property loan scheme (stalled ~5 years) up to Rs. 5 million per borrower. For the first Rs. 3 million, a 4% interest subsidy; from Rs. 3–5 million, a 2% subsidy. Rs. 500 million is allocated. For example, on Rs. 3 million, a typical monthly benefit exceeds Rs. 8,500.

¶ 61 33.6 Expanding Agrahara insurance benefits

¶ 62 To strengthen the Agrahara health insurance fund’s sustainability, monthly contributions will increase by Rs. 75 for the Rs. 125 tier, and by Rs. 150 for the Rs. 300 and Rs. 600 tiers.

¶ 63 33.7 Increasing festival advances

¶ 64 The interest-free festival advance will increase from Rs. 10,000 to Rs. 15,000.

¶ 65 33.8 Disaster advance

¶ 66 Along with salary increases, the disaster loan at 4.2% interest is enhanced from Rs. 250,000 to Rs. 400,000. To expedite disbursements, Rs. 10,000 million is set aside for advance account limits.

¶ 67 33.9 Increasing allowances for teachers in difficult areas and for principals

¶ 68 Teachers in difficult schools have not had an allowance increase for 15–20 years; we propose an increase of Rs. 1,500. To recognize principals’ administrative responsibilities and improve educational outcomes, we will increase the principal’s allowance by Rs. 1,500 and allocate Rs. 1,000 million.

¶ 69 33.10 Increasing gatekeeper allowance at unprotected level crossings

¶ 70 Due to frequent accidents, about 1,000 gatekeepers are engaged. Their current Rs. 7,500 per 8-hour shift per month is inadequate. We propose to increase it to Rs. 15,000, allocating Rs. 250 million. Those doing three shifts (24 hours) will see monthly income rise from Rs. 22,500 to Rs. 45,000. This addresses worker welfare; broader safety solutions will follow.

¶ 71 33.11 Regularizing temporary/casual/substitute/contract/relief workers

¶ 72 About 9,800 workers serve on temporary, casual, substitute, contract, or relief bases without proper confirmation, regardless of which government hired them. We will not continue ad-hoc hiring, but will regularize those already engaged for over six months and meeting criteria under Public Administration Circulars 25/2014 and 29/2019.

¶ 73 34. Public finance and macroeconomic stability

¶ 74 34.1 Domestic Revenue Mobilization

¶ 75 Aligned to the State Finance Management Act No. 44 of 2024, we will build a modern revenue system based on transparency, fairness, and administrative efficiency, targeting medium-term tax revenue above 15% of GDP, safeguarding fiscal space for social investment, strengthening investor confidence, and deepening capital markets.

¶ 76 34.2 Progress in revenue collection

¶ 77 When we assumed office, compliance and trust were weak. Within a year, revenue improved markedly: total government revenue for the first nine months of 2024 was Rs. 2,900 billion and rose to Rs. 3,800 billion for the comparable period in 2025. We abolished SVAT from 1 Oct 2025 due to leakages, shifting to a fast refund system to protect business cash flows. Registered taxpayers increased by 3 million by 30 Sep 2025 compared to 2024.

¶ 78 We are implementing broad reforms to rationalize tax expenditures, strengthen income taxes, improve VAT and excise efficiency, and expand the formal base via simplified, digital-first compliance, alongside institutional reforms to improve spending efficiency and accountability.

¶ 79 35. Revenue proposals for 2026

¶ 80 35.1 VAT/Social Security Contribution on imported coconut and palm oil

¶ 81 To ensure equal treatment between domestic and imported oils, instead of special commodity levies (Rs. 150/kg for coconut oil and Rs. 275/kg for palm oil), we will apply the standard VAT/SSCL regime from 1 April 2026, removing the special levies and placing imports under the same structure as domestic production.

¶ 82 35.2 Lowering VAT/SSCL registration threshold

¶ 83 To broaden the base, the annual turnover threshold will be reduced from Rs. 60 million to Rs. 36 million from 1 April 2026. This will also deter artificial splitting of single businesses into multiple entities to avoid registration.

¶ 84 35.3 Removing cess on imported fabrics and applying VAT

¶ 85 Domestic fabric production is subject to VAT while imported fabric is exempt but pays a cess of Rs. 100/kg. To ensure fair competition, we will remove the cess and apply VAT from 1 April 2026.

¶ 86 35.4 Applying SSCL at import/manufacture stage for vehicles

¶ 87 Currently SSCL is levied at retail sale, with poor compliance. We will levy SSCL at import or at manufacture, and exempt subsequent retail stages, from 1 April 2026. This does not increase overall tax but secures collection.

¶ 88 35.5 Implementing a national tariff policy

¶ 89 From April 2026, we will move to a rational tariff schedule (0%, 10%, 20%, 30%) and phase out para-tariffs in a time-bound manner, protecting domestic production while minimizing revenue impact and aligning with international trade.

¶ 90 35.6 Improving tax audit

¶ 91 From January 2026 (for returns filed thereafter), we will introduce a modern audit framework: risk-based case selection by a Risk Management Unit, and review by a committee appointed by the Commissioner General. Legal amendments will underpin transparent, consistent audits and reduce discretionary contact.

¶ 92 35.7 Updating tax laws

¶ 93 We will amend the Telecommunication Levy Act, No. 21 of 2011, to exclude bad debts from the levy base, and include recoveries in the month collected. We will also embed AML/CFT information-sharing provisions across tax statutes to allow exchange with FIU and enforcement agencies, and strengthen definitions, prosecution powers, and penalties to deter tax crimes.

¶ 94 35.8 National e-Invoicing

¶ 95 We have introduced an API-based integration framework between taxpayers’ ERP systems and RAMIS. A pilot with selected firms will go live this year. Phase 1 integrates selected exporters and pilot companies; Phase 2 covers all VAT-registered taxpayers; Phase 3 links POS machines for real-time e-invoicing. Target completion is 2026 to curb VAT fraud and enhance transparency.

¶ 96 35.9 Single campus for the Inland Revenue Department

¶ 97 To enhance service quality and efficiency through digitization, we will consolidate IRD HQ and related offices into a single complex. Rs. 2,000 million is allocated for feasibility and initial development.

¶ 98 36. Advancing publication dates of fiscal reports

¶ 99 To improve transparency and responsiveness, we will advance deadlines: the Annual Final Budget Position report from June 30 to May 31 each year, and the Mid-Year Fiscal Position report from October 31 to August 31.

¶ 100 37. Borrowing limits

¶ 101 Documents required under the State Finance Management Act No. 44 of 2024 have been tabled with the Second Reading.

¶ 102 37.1 Reducing the 2026 borrowing ceiling

¶ 103 Following revenue estimate revisions, we propose reducing the previously submitted 2026 borrowing limit by Rs. 60 billion to Rs. 3,740 billion (see Annex II). For the first time historically, we reduce the ceiling, after keeping within the 2025 limit.

¶ 104 37.2 Amending votes due to subject changes

¶ 105 Pursuant to Gazette 2485/65 of 18.10.2025 altering ministerial subjects and functions after the Appropriation Bill was tabled, amendments will be made at Committee Stage, consistent with National Budget Circular 04/2025 for 2025 heads.

¶ 106 38. Conclusion

¶ 107 We present a disciplined Budget within a sound fiscal framework and reliable projections; we assure data will not shift adversely in 2026. Execution speed and outcomes must improve: Treasury will release allocations promptly from January for planned programs.

¶ 108 Sri Lanka’s comprehensive economic reforms are gaining international recognition. The country is being recognized as a tourism paradise and top destination; democratic indices show we have moved 15 places forward; anti-corruption efforts have earned global commendation. We have restored human dignity, fairness, Sri Lankan identity, the rule of law, institutional independence, and depoliticized security services; advanced legislation; acted against narcotics and organized crime; strengthened external relations; stabilized the economy and fiscal discipline; improved government revenue, exports, tourism, remittances, port and customs earnings.

¶ 109 We are a government that does not betray people’s aspirations. We have decisively ended racism, religious extremism, and political patronage; restored equality before the law; removed improper privileges of former presidents; and opened pathways for merit, skill, and integrity over wealth and power. We are creating an investor-friendly, rules-based, transparent environment with swift facilitation, modern legal frameworks, visa policies, and infrastructure.

¶ 110 Education for all, a safe home for all, and a humane, cultured nation are our goals. The people have entrusted us with ending a long history of insecurity and pain. Though difficult, we will climb this mountain together.

¶ 111 A budget is not mere accounting; it is a compact about our shared future — balancing development goals with fiscal sustainability and guaranteeing citizens’ rights through transparent allocation. Our diagnosis is clear; we now execute the cure.

¶ 112 We allocate Rs. 10 billion in this Budget with the expectation of holding provincial elections within the year, subject to Parliament enacting the necessary legal framework.