Wealth tax could curb inequality and fund education in Sri Lanka, says HRW 

A new report by the Human Rights Watch (HRW) titled “Tax Giveaways, Struggling Schools,” suggests that Sri Lanka could generate nearly USD 450 million annually by imposing a wealth tax of 1.7 to 3.5 percent on the richest 0.5 percent of its population,

The rights group said that decades of corporate tax exemptions, weak income and wealth taxation, and corruption within revenue agencies have crippled government finances and widened inequality.

HRW said that a modest solidarity-style wealth tax, similar to Spain’s model, could raise funds equivalent to half the education budget in 2022, helping reverse years of underinvestment in public services.

According to the report, tax incentives offered through the Board of Investment and under the Strategic Development Projects Act cost the Treasury Rs. 978 billion — about 56 percent of total tax revenue — in 2022.

These “tax giveaways,” HRW noted, have disproportionately benefited large corporations and high-income earners while draining resources from education and welfare programmes.

HRW also criticised Sri Lanka’s heavy reliance on indirect taxes such as VAT, which it described as regressive and harmful to low-income households.

While direct taxes made up 33 percent of total revenues in 1977, they averaged only 19 percent between 1980 and 2018, rising briefly to 30 percent before the economic crisis.

Under new fiscal reforms, the share is projected to fall again to around one-quarter of total revenues, while VAT collections are expected to rise to more than one-third between 2024 and 2027.

The report cited a 2024 World Bank review describing Sri Lanka’s VAT reforms as “particularly regressive,” contributing to a 3.9 percentage point increase in poverty.

It also referred to an IMF governance review that found “virtually no culture of integrity” within revenue agencies, with corruption “at every level, including top management.”

To address these challenges, Human Rights Watch urged the Government to adopt progressive tax measures, enhance transparency in granting corporate exemptions, and strengthen revenue enforcement.

The group further called on global policymakers to finalise a UN tax cooperation treaty to tackle illicit financial flows and tax competition undermining developing economies.