Sri Lanka’s banks present far-reaching proposals to Finance Minister to drive economic recovery

Sri Lanka’s banking sector has placed itself at the heart of the country’s economic recovery roadmap, presenting a far-reaching set of proposals for inclusion in the 2026 National Budget. 

The proposals, developed and submitted by the Sri Lanka Banks’ Association (SLBA) on behalf of all licensed commercial banks, were shared with Deputy Minister of Finance, Planning and Economic Development Dr. Anil Jayantha Fernando at a high-level consultation held at the Presidential Secretariat recently.

Representing the collective voice of the financial services industry, the submission underscores the critical role of banks in rebuilding economic resilience, restoring investor confidence and accelerating growth. The recommendations, the SLBA emphasised, are designed not only to stabilise the financial system but also to expand opportunity for businesses, entrepreneurs and households nationwide.

Financial stability and taxation reform

The SLBA has called for urgent reforms to strengthen the financial sector’s capacity to support recovery. Proposals include targeted credit guarantee schemes to help revive distressed enterprises, accelerated tax deductibility for impairment provisions to encourage restructuring, and alignment of banking sector taxation with regional benchmarks. Excessive taxation, currently at 53% for domestic banks and 65% for foreign banks, is described as a barrier to competitiveness and capital formation. A fairer regime, the Association argued, would allow banks to direct resources towards lending for critical infrastructure and priority sectors.

Supporting and formalising the SME Sector

Recognising the backbone role of SMEs in the economy, banks have urged the government to accelerate SME formalisation through mandatory VAT registration at concessional rates, the adoption of subsidised accounting software, SME-specific business bank accounts, and national-level financial literacy programmes. The SLBA also proposed mandatory Taxpayer Identification Numbers for all new accounts, and incentives for SMEs to digitise transactions, which would expand the tax base and improve credit access.

Stimulating demand and broadening the tax base

To drive growth and consumption, banks recommend rationalising indirect taxes to improve household disposable income and investor appetite, while broadening the tax net through digitisation and the use of proxy data such as utility and vehicle records. Simplifying compliance by treating withholding tax as a final tax, even at higher rates, was also suggested as a way to improve liquidity and overall revenue collection.

Digital economy, Fintech and Cybersecurity

Calling for decisive investment in the country’s digital infrastructure, the SLBA proposed the creation of a national cloud framework to serve both public and private stakeholders, alongside tax incentives for fintech startups and local payment gateways. The Association also stressed the importance of levelling the playing field by applying VAT on global digital services such as Google, Meta, PayPal, while advancing digital transactions by capping large cash payments and mandating electronic settlement of supplier, tax and utility bills. A public–private initiative on cybersecurity was also recommended to lower compliance costs and safeguard systemic resilience.

Investment, PPPs and Green Finance

In proposals aimed at catalysing investment, the SLBA urged expedited restructuring of SriLankan Airlines to improve the country’s sovereign rating, which it argued is currently a major barrier to foreign direct investment. The creation of regional one-stop shops for regulatory approvals, reforms to facilitate Port City investments, and tax incentives for corporate bond issuances were among other measures advocated.