Hon. Anura Kumara Dissanayake

¶ 01 33.3 Second phase of public sector salary increase

¶ 02 An allocation of Rs. 110 billion has been made to implement the second phase of the salary revisions undertaken this year. Accordingly, these salaries will be paid to all public servants with effect from January 2026.

¶ 03 33.4 Second phase to resolve pension anomalies for those retired before 2020

¶ 04 Under the second phase of pension revisions, pensions of those who retired before 2020 will be adjusted based on the 2019 salary structure. Rs. 20,000 million has already been allocated to pay the revised pension from July 2026.

¶ 05 33.5 Concessionary housing and distress loans for public servants

¶ 06 We propose a new structure to provide public servants with distress loans up to Rs. 5 million. Under this, the initial tranche up to Rs. 3 million will carry a concessionary interest of 4 percent, and from Rs. 3 million to Rs. 5 million at 2 percent. We propose to allocate Rs. 500 million to implement this scheme.

¶ 07 33.6 Expanding the Akrahara health insurance cover

¶ 08 Although public servants receive certain benefits under the current Akrahara insurance scheme, to ensure sustainability of benefits given the minimum employee contribution of Rs. 125, we propose to increase: - the Rs. 125 contribution by a further Rs. 75, and - the monthly contributions of Rs. 300 and Rs. 600 by a further Rs. 150.

¶ 09 33.7 Increase in festival advance

¶ 10 We propose to increase the festival advance paid to public servants from Rs. 10,000 to Rs. 15,000.

¶ 11 33.8 Distress loan advance

¶ 12 In line with the public servants’ salary increase, we have arranged to increase the distress loan advance available at 4.2 percent interest from Rs. 250,000 to Rs. 400,000. To ensure these advances are disbursed promptly within a short period, Rs. 10,000 million has been allocated to the public servants’ advance account limit.

¶ 13 33.9 Increased allowances for teachers in hardship areas and principals’ allowances

¶ 14 As allowances for teachers in schools in hardship areas have not been increased for 20 years, we propose to increase this allowance by Rs. 1,500 to encourage such teachers.

¶ 15 Recognizing the administrative responsibilities and accountability of principals in achieving educational goals, we propose to increase the principal’s allowance by Rs. 1,500 for those serving as principals, and to allocate Rs. 1,000 million to enhance achievement of educational targets.

¶ 16 33.10 Increase in allowance for unprotected railway level crossing watchmen

¶ 17 Due to frequent accidents at unprotected railway crossings causing significant annual loss of life and permanent disability, around 1,000 level crossing watchmen have been appointed. We propose to increase the current minimum monthly allowance of Rs. 7,500 for an eight-hour shift to Rs. 15,000, and allocate Rs. 250 million for this purpose.

¶ 18 33.11 Granting permanent appointments to temporary, casual, substitute, contract and relief-basis recruits

¶ 19 We have been informed that around 9,800 employees recruited on temporary, casual, substitute, contract and relief bases by the previous government remain in various institutions in the public sector with low pay and without being granted permanent appointments. In many cases, only a segment of such employees were made permanent while others were denied the opportunity.

¶ 20 We accept the need to regularize and grant permanent appointments to these employees who have served government for a long period under irregular conditions, while ensuring that future recruitments under government are conducted in an orderly manner. Therefore, in line with Public Administration Circulars 25/2014 and 29/2019, we propose to grant permanent appointments to all such employees who meet the requisite qualifications and have served for more than six months in various institutions at present.

¶ 21 34. Fiscal discipline and macroeconomic commitment

¶ 22 34.1 Revenue measures and Domestic Revenue Mobilization

¶ 23 We are fully implementing the Public Financial Management Act, No. 44 of 2024. At the same time, our Government has taken steps to establish a modern tax system based on transparency, fairness and administrative efficiency. Our goal is to raise and sustain tax revenue at or above 15 percent of GDP in the medium term, in line with international benchmarks, to ensure the fiscal space needed for key social investments, strengthen investor confidence and deepen our financial markets.

¶ 24 34.2 Improvements in government revenue collection

¶ 25 When we assumed office, revenue collection was at a low level, tax compliance was poor and public trust in the overall system was eroded. We are pleased to announce significant progress in revenue collection within a year.

¶ 26 Accordingly, total government revenue including grants increased from Rs. 2,900 billion in the first nine months of 2024 to Rs. 3,800 billion in the same period of 2025. We extend our gratitude to all public officers who contributed to this achievement.

¶ 27 The Simplified VAT (SVAT) system was abolished from 01 October 2025 and replaced by an approved refund mechanism to enhance compliance and reduce abuse. The number of registered taxpayers increased by 300,000 as at 30 September 2025 compared to 2024.

¶ 28 Our approach to strengthening revenue collection reflects the social contract between citizens and the State, aligned with the principle of shared responsibilities. We are implementing a reform programme that rationalizes tax expenditures, strengthens income taxes, enhances VAT and excise, broadens the tax base, simplifies rate structures and prioritizes digitization through formal systems. These measures must align with broader institutional reforms to improve spending efficiency, accountability and public trust.

¶ 29 35. Revenue proposals – 2026

¶ 30 35.1 Levying VAT and SSCL on imported coconut oil and palm oil

¶ 31 Currently, domestic production is subject to VAT and SSCL, while imported coconut oil and palm oil are subjected to a Special Commodity Levy (SCL) of Rs. 150 and Rs. 275 per kg, respectively. To ensure a level playing field, we propose to remove the SCL on imported coconut oil and palm oil and instead apply the general tax regime, including VAT. Effective April 2026.

¶ 32 35.2 Reducing the registration threshold for VAT and SSCL

¶ 33 To broaden the tax base, we propose to reduce the annual turnover threshold for VAT and SSCL registration from Rs. 60 million to Rs. 36 million, effective 1 April 2026.

¶ 34 35.3 Removing CESS on imported textiles and applying VAT

¶ 35 While domestic textile production is subject to VAT, imported textiles have been exempt from VAT but subject to a CESS of Rs. 100 per kg. To ensure a level playing field, we propose to remove the CESS on imported textiles and apply VAT instead. Effective April 2026.

¶ 36 35.4 Applying SSCL on motor vehicles

¶ 37 It has been observed that the Social Security Contribution Levy (SSCL) is not being properly collected at the point of vehicle sale. Therefore, we propose to collect SSCL either at the point of importation or at the point of manufacture and sale, and exempt the tax at the post-sale stage. Effective April 2026.

¶ 38 35.5 Implementing the National Tariff Policy

¶ 39 We propose to implement a National Tariff Policy to replace the current 0%, 15%, 20% tariff rates with 0%, 10%, 20%, 30%, effective April 2026. The objective is to phase out non-tariff border taxes by adjusting the above tariff rates. To minimize the impact on Government revenue, we propose to prepare and implement a time-bound plan to phase out non-tariff import taxes.

¶ 40 35.6 Enhancing tax audit procedures

¶ 41 To enhance transparency, efficiency and fairness of tax administration, a modern, risk-based audit framework will be introduced from January 2026, including: - A transparent risk assessment carried out by a risk management unit to select audit cases. - Provision for review by a committee appointed by the Commissioner General of Inland Revenue where necessary. Legislative amendments will be introduced to implement these reforms, which will reduce informal interactions, limit discretion and opportunities for corruption, and support a rules-based, trustworthy administration.

¶ 42 35.7 Updating the tax framework to current needs

¶ 43 - For Telecommunications Levy (Act No. 21 of 2011), when remitting the levy on telecom services, any irrecoverable tax debts of telecom operators should not be included; any recovered, previously irrecoverable debts should be included in the levy of the relevant month. We propose to amend and periodically update the law accordingly. - To strengthen the AML/CFT framework, we propose to include legal provisions in tax statutes enabling information sharing between tax authorities, the Financial Intelligence Unit and other enforcement agencies. - To bolster Government efforts against money laundering and terrorist financing, we propose to introduce legal provisions across tax laws enabling assessment of erroneous tax positions, imposition of penalties, prosecution by the Attorney General and enforcement.

¶ 44 35.8 Establishing a National e-Invoicing System

¶ 45 A standardized API architecture has been introduced to enable seamless integration between taxpayers’ ERP systems and the Revenue Administration Management Information System (RAMIS), laying the foundation for a national e-invoicing system.

¶ 46 - A pilot with selected companies upgraded for API integration has been completed and is expected to go live within this year. - Phase 1: Integrate selected pilot companies via API and expand to export-oriented businesses. - Phase 2: Cover all VAT-registered taxpayers. - Phase 3: Implement electronic invoicing via POS with near real-time reporting to enhance compliance and transition to a fully web-based VAT administration, improving efficiency and transparency.

¶ 47 35.9 Establishing a dedicated Inland Revenue Department complex

¶ 48 To strengthen digitized, efficient service delivery and revenue collection, we propose to house the Inland Revenue Department headquarters and related offices within a single, dedicated campus, improving reliability and taxpayer service. After selecting the most suitable proposed site and conducting a feasibility study, we propose to allocate Rs. 2,000 million for the new office complex.

¶ 49 36. Changing publication dates of the Final Budget Position Report and Mid-Year Fiscal Position Report

¶ 50 To improve fiscal transparency and make public financial management more responsive by disseminating essential Government fiscal information in a timely manner during the financial year, we propose to: - Advance the deadline for the Final Budget Position Report (Annual Report) from June 30 to May 31 each year. - Advance the Mid-Year Fiscal Position Report from October 31 to August 31 each year.

¶ 51 37. Borrowing limits

¶ 52 The borrowing limits for the 2026 Appropriation Bill are set out in Annex II, with technical notes on related expenditure procedures. Documents mandated under the Public Financial Management Act, No. 44 of 2024 to accompany the Second Reading of the Budget have been tabled in Parliament.

¶ 53 37.1 Reduction of the maximum borrowing limit for 2026

¶ 54 Due to revisions to revenue estimates arising from these Budget proposals, the borrowing limit of Rs. 3,740 billion stated in the Appropriation Bill tabled in Parliament on 26.09.2025 should be reduced by Rs. 60 billion. This revision is set out in Annex II to this Budget Speech.

¶ 55 37.2 Amendments to the Appropriation Bill due to changes in ministerial subjects

¶ 56 Following the publication of Gazette Extraordinary No. 2485/65 dated 18.10.2025 revising subjects and functions of certain ministries, corresponding amendments to the Appropriation Bill will be effected during the Committee Stage of the Budget. Related expenditure head adjustments required for 2025 have already been set out in National Budget Circular 4/2025.

¶ 57 38. Concluding remarks

¶ 58 Hon. Speaker,

¶ 59 At a time when Sri Lanka’s comprehensive economic reform programme is being internationally commended for delivering satisfactory, continuous progress; at a time when Sri Lanka has earned a global reputation as a paradise for tourists and a premier destination; at a time when our country has advanced 15 places in the global democracy index; at a time when we are commended for effective anti-corruption measures; we take great pleasure in presenting the Appropriation Bill for 2026.

¶ 60 Within a short period, we have rekindled a new sense of humanity in our country. We have built equity. We have strengthened institutions that uphold the rule of law independently, de-politicized the Police and security forces, enacted new laws to break drug and underworld networks and strengthened foreign relations—unique achievements. We have strengthened government revenue through fiscal discipline, increased export and tourism earnings and remittances, and fortified macro stability. Improved port performance, higher customs revenue and our Government’s first-year scorecard attest to this.

¶ 61 The people have strong confidence in the Government, which does not abandon but fulfills their aspirations. We have taken firm, timely actions against corruption; ended racism, religious extremism and bigotry by upholding people’s sovereignty; and restored the rule of law, order and independence at levels unseen in decades. We present a Budget in a country where public funds are not abused and fiscal discipline is upheld. For the first time in history, we have presented a second consecutive Budget of a Government that does not misuse public resources or grant undue privileges.

¶ 62 We came to power a year ago through a historic political decision. We have made clear that government is not ownership of political power but stewardship. Unlike past regimes that converted temporary, people-given authority into permanent power, we chose better decisions over popular shortcuts and constructive decisions over destructive ones. We dismantled the nexus between politics and illegal activities, defeated corrupt political power and rebuilt a responsible, law-abiding, patriotic system of governance.

¶ 63 We have moved beyond past histories where, within months of taking office, privileges were granted to friends; where central bank robberies occurred; where massive tax concessions were doled out to a few; where the legal system and judiciary were politicized; and where patients received saline injections instead of medicines. We have transformed that unethical, immoral order. We have narrowed the gap between people and representatives. Politicians are no longer deities entitled to undue privileges; they are ordinary people’s representatives. We removed excessive privileges of former Presidents. In a country that declared bankruptcy, where children lacked schools, millions went to bed without a meal, medicines were unaffordable and youth were jobless, it is neither ethical nor sustainable to continue such privileges. We set a new example.

¶ 64 Our single aim is to build an economy where no one goes without three meals, where every child receives nutrition and education, where all have shelter and healthy lives. We have opened pathways for anyone willing to serve the country—from the smallest level to the highest—based on talent, skill and merit, not wealth, power or status. We ended the history of twisting laws and regulations to favour friends, relatives or criminal networks sheltered by politics. In appointments, we look for competence, integrity and willingness to serve—not political background, ethnicity, religion, school or residence.

¶ 65 We changed the dark investor perception of Sri Lanka. Investors are our partners, not prey. We provide a law-governed, predictable, independent judicial system and a corruption-free environment—free of side deals, bribes and favoritism—while rapidly developing policy frameworks and infrastructure with dedicated relationship managers to expedite outcomes.

¶ 66 This is home to over 20 million people and generations to come. We aim to build a humane, compassionate nation—even towards animals—grounded in strong education for all.

¶ 67 Hon. Speaker, the people have entrusted me with the singular responsibility to end a long, unsafe, complex and pressurized history. We deploy that mandate with humility to fight corruption, pursue national unity and apply the law equally. However difficult, we will proceed with resolve. This Budget advances the path to ensure every Sri Lankan enjoys well-being.

¶ 68 We know the wisdom to accept what cannot be changed, courage to change what can be changed and discernment to know the difference. Unlike past governments that tightened people’s belts while loosening politicians’, we set the opposite example: easing people’s burdens while tightening those of politicians. We do not need a big government—only a productive one.

¶ 69 A Budget is not just a set of accounts; it is an allocation of financial resources to realize every citizen’s rights and a collective vision for the country’s future. Our problems and priorities are clear. We no longer need diagnosis—we are administering the cure. It is challenging, but together we can prevail.

¶ 70 To those who left due to injustices or were forced out; to those educated here or abroad who chose to serve their motherland but were denied opportunities because they would not bow to wrongdoing—we say: that era is over. A system that places the right person in the right place is opening its doors to you. Come serve freely.

¶ 71 As Rabindranath Tagore said, “Only when we create the capacity and opportunity for what is ours will it come to us.” This Budget seeks to eliminate bribery and corruption, spur development, restore confidence and begin a new life—a renaissance.

¶ 72 We invite the Opposition: criticize us, hold us accountable, oppose us—but at least, for the sake of future generations, support wholeheartedly our fight to end drug trafficking and the underworld and to eradicate poverty. That is what the nation expects.

¶ 73 The powerful tides of history call us to rebuild this country. The losses, neglect, suppression and threats of the past were to prepare us for building anew. The next generation must be free of that sorrow. Dreams were sacrificed for a more beautiful country; even those who passed before seeing it, dreamed of it. We bear those pure aspirations, and with devotion we shall fulfill them.

¶ 74 We believe the sun shines beyond the dark clouds and that light breaks through darkness. We will not heed the frenzied voices of adversaries, but the steady, hopeful expectations of our people. We will build a prosperous, ethically proud, globally respected nation with deep human values. You—the people—are the strength and reason behind this change. We thank public servants, professionals, entrepreneurs and Sri Lankans abroad. We call upon our diaspora to return, invest and join hands to rebuild our beloved motherland.

¶ 75 Finally, I extend my sincere thanks to all officials of the Ministry of Finance, especially the Secretary to the Treasury, Dr. Harsha Suriyapperuma, for their professionalism, dedication and sense of duty in preparing this forward-looking Budget. As officers of the Ministry of Finance, we expect your continued support and shared responsibility to implement these proposals effectively and on time, advancing the Government’s economic reform programme and national development goals.

¶ 76 Thank you.

¶ 77 Annexures tabled:

¶ 78 Annex I – Summary of Budget Estimates 2026 (Rs. billion) - Total revenue and grants: 2024: 4,091; 2025 BE: 5,100; 2026 BE: 5,300 - Total revenue: 4,031; 5,075; 5,270 - Tax revenue: 3,705; 4,725; 4,910 - Income tax: 1,026; 1,120; 1,210 - Taxes on goods and services: 2,201; 2,953; 3,056 - Taxes on external trade: 477; 652; 644 - Non-tax revenue: 326; 350; 360 - Grants: 60; 25; 30 - Total expenditure: 6,131; 6,548; 7,057 - Recurrent: 5,340; 5,530; 5,688 - Salaries and wages: 1,066; 1,220; 1,323 - Other goods and services: 351; 380; 401 - Interest: 2,690; 2,650; 2,617 - Subsidies and transfers: 1,234; 1,280; 1,347 - Public investment: 817; 1,033; 1,380 - Other: (26); (15); (11) - Revenue surplus/(deficit): (1,309); (455); (418) - Primary surplus/(deficit): 650; 1,202; 860 - Overall deficit: (2,040); (1,448); (1,757) - Total financing: 2,040; 1,448; 1,757 - External financing: 333; 200; 235 - Gross foreign borrowing: 3,967; 650; 700 - Amortization: (3,634); (450); (465) - Domestic financing: 1,707; 1,248; 1,522 - Non-bank borrowing: 2,087; 1,248; 1,522 - Bank borrowing and others: (381); –; – - Ratios to GDP (%): - Revenue and grants: 13.7; 15.9; 15.4 - Total revenue: 13.5; 15.9; 15.3 - Tax revenue: 12.4; 14.8; 14.2 - Non-tax revenue: 1.1; 1.1; 1.0 - Grants: 0.2; 0.1; 0.1 - Total expenditure: 20.5; 20.5; 20.5 - Recurrent: 17.9; 17.3; 16.5 - Non-interest: 8.9; 9.0; 8.9 - Interest: 9.0; 8.3; 7.6 - Public investment: 2.7; 3.2; 4.0 - Revenue surplus/(deficit): (4.4); (1.4); (1.2) - Primary surplus/(deficit): 2.2; 3.8; 2.5 - Overall deficit: (6.8); (4.5); (5.1)

¶ 79 Prepared by the Fiscal Policy Department.

¶ 80 Annex II – Gross Borrowing Requirement 2026 (Rs. billion) - Non-debt receipts: 5,355 - Total gross expenditure: 4,485 - Recurrent: 3,105 - Capital: 1,380 - Debt service payments: 4,495 - Interest: 2,617 - Amortization: 1,878 - Provision for settlement of Treasury operations: 10 - Provision for book value adjustments of Government securities: 105 - Gross borrowing requirement to be posted in Government accounts: 3,740

¶ 81 Prepared by the Fiscal Policy Department.

¶ 82 Annex III – Expenditure Proposals 2026 (Selected; Rs. million) 1. Vehicles/machinery for public institutions and Provincial Councils – … 2. Enhancing digital access in public institutions – 1,000 3. Settling outstanding statutory dues of SOEs within two years – 5,000 4. Reactivating bank-facilitated distress loan scheme for public servants – … 5. Increase principals’ allowance and hardship allowance for teachers – 1,000 6. Increase allowance for unprotected railway crossing gatekeepers – 250 7. Develop auxiliary zones linked to existing investment zones – 1,250 8. Incentives to attract international data centres – 500 9. Streamline land release for investment – 100 10. Establish/develop industrial zones – 1,000 11. Export promotion – 500 12. Employment support for youth with disabilities/special needs in private sector – 400 13. Public access and sanitation facilities for persons with disabilities/special needs – 1,000 14. Increase wages of estate/plantation workers – 5,000 15. Concessions for thalassemia patients – 250 16. Day-care centres for children with autism and related conditions – 200 17. Increase total allocation for “Sakthi” citizen empowerment programme to Rs. 25 billion – 20,750 18. Support public institutions to promote a cashless economy – 1,000 19. Increase domestic milk production – 1,000 20. Shelters and crematoria for street animals – 100 21. Complete construction of Badalkumbura milk processing factory – 3,000 22. Upgrade livestock farms – 1,000 23. Concessions for small-scale coconut cultivators – 2,500 24. Upgrade temperature-controlled storage at Dambulla – … 25. Establish a Sustainable Agriculture Credit Fund – 800 26. Facilities for mechanized paddy drying – 500 27. Climate-smart irrigation to boost agriculture in Matale, Kandy and Dry Zone – 1,000 28. Increase Mahapola, bursaries, teacher training and TVET student allowances by Rs. 2,500 – 2,750 29. Allowance for low-income university students with disabilities – 50 30. New housing for families at high landslide risk – 2,000 31. Housing assistance for institutionalized persons and child protection reintegration – 5,500 32. “A Place of Their Own for a Beautiful Life” housing for low-income families – 3,000 33. Housing for internally displaced communities – 1,150 34. Feasibility studies for flood control in Hambantota, Galle, Kalutara and Ratnapura – 500 35. Kalutara marsh development – 100 36. Solutions to human-elephant conflict – 1,000 37. Ensuring safety of fishermen – 100 38. Develop fisheries harbours – 1,000 39. Implement national road safety programme to reduce accidents – 1,000 40. Commence initial works for Irakkamam and Ponnudalkeni bridges in Batticaloa – 500 41. Construct Rambukkana–Kalagedihena section of Central Expressway – 1,000 42. Establish “Arogyaa” health centres – 1,500 43. Relocate Deniyaya and Dambulla hospitals to suitable sites – 1,000 44. Promote sports culture – 800 45. Launch nationwide anti-drug operation – 4,500 46. Promote drama, performing arts and literature – 50 47. Modernize abattoirs and relocate to suitable sites – 2,000 48. Release land in Ratnapura city for development; build staff quarters for public servants – 500 49. Development of Hatton and Matale towns – 500 50. Construct urban halls in Ampara and Moneragala districts – 200 51. Subsidies for buses operating on non-profitable routes to ensure reliable public transport – 2,000 52. Women’s empowerment – 200 53. Rs. 5,000 allowance for schoolchildren with disabilities from low-income families – 50 54. Complete the halted Nintavur Cultural Centre – 560 55. Citizens’ investment in the silver economy (elderly) – 10 56. Satellite-based information to fishermen on fishing grounds – 100 57. Establish Inland Revenue in a single campus – 2,000 58. Develop domestic airports – 1,000 59. Enhance facilities for food security – 1,000 60. Support higher education and technical access for journalists – 100 61. Salinity intrusion and flood control via Nilwala Ganga in Matara – 1,000

¶ 83 2026 Budget Speech – English Text (selected opening)

¶ 84 1. Preamble

¶ 85 Hon. Speaker, it is our great pleasure to present our second National Budget to this House.

¶ 86 Following the historic mandate given to us by the Sri Lankan citizens, within a short time period of a year, we have taken many decisive steps with a clear vision to fulfill their aspirations. The people expected a clear change in the nepotism that had existed until now and the corrupt political culture associated with it. Today, we can be proud of the transformative steps we have taken to preserve that trust. We have embarked on a continuous mission to modernize the economic and political structure, create a people-centred governance, establish the rule of law and order, strengthen governance and bring our economic achievements to the people living at the grassroots level.

¶ 87 [English text continues as per the Budget Speech pages included.]