Five Fixes for a Fragile Economy: Advocata Warns Sri Lanka Cannot Afford Another Cosmetic Budget

Sri Lanka has endured extraordinary hardships in recent years. Families lost savings to inflation and debt restructuring, and public trust in the system is thin. As we prepare for the 2026 parliamentary budget speech, we cannot afford another round of quick fixes or symbolic gestures. The coming years must deliver credible, targeted reforms that restore fairness, strengthen revenue, and accelerate growth.

Sri Lanka’s IMF supported recovery framework gives us a fiscal anchor, but it is only a starting point. Real progress depends on how the country chooses to modernize its economic institutions and align incentives for both citizens and investors. The following five proposals offer that direction, grounded in fairness, fiscal discipline, and practical results.

1. Replace Port City Tax Exemptions with Performance-Based Tax Credits

Businesses operating in the Port City enjoy sweeping exemptions on both corporate and personal income taxes, some for up to 25 years. These privileges now extend to both resident and non – resident employees and include enhanced capital allowances and loss carryforwards that few firms outside the zone could dream of. Such blanket exemptions are fiscally costly and unfair. They create a two tier economy where a company on one side of Chaithya Road pays full tax while one inside the Port City pays none, despite benefiting from world class infrastructure, exclusive road access, and regulatory advantages.

Sri Lanka’s corporate tax revenue contribution is already among the lowest in the region, just 2% of GDP in 2023 compared to 5.6 in Malaysia and over 6% in India.. Continuing these exemptions undermines fiscal consolidation just when the country must maintain a primary surplus of 2.3 percent of GDP and meet debt obligations.

Advocata’s proposal: Replace these exemptions with targeted tax credits linked to verifiable outcomes such as job creation or capital investment.

Tax credits directly reduce tax liability only when measurable results are achieved. They are fairer, transparent, and fiscally sustainable. Countries like Singapore have adopted refundable investment credits to attract capital without distorting competition.

Sri Lanka should follow suit. Firms would claim credits only after meeting pre-agreed milestones such as number of jobs created, minimum tenure, or capital invested. This model rewards real economic activity instead of location based privilege, ensuring that the state pays for performance, not promises.

2. Pass a Plant Variety Protection Act to Spur Agricultural Innovation

Sri Lanka’s agricultural sector has been trapped in low productivity for decades, largely because it lacks plant variety protection (PVP) legislation. These are laws that grant breeders intellectual property rights over new seed varieties. Without these rights, private firms have little reason to invest in developing high-yield or climate-resilient crops. Instead, farmers depend almost entirely on the Rice Research and Development Institute (RRDI), a state-run institution constrained by limited funding and outdated research capacity.

This dependence has stifled innovation. Paddy yields have barely improved over the past two decades, while climate shocks continue to undermine output. Private sector innovation, meanwhile, remains confined to small, high-end seed varieties with little benefit to the average farmer or consumer.

By contrast, countries such as the United States have long enacted Plant Variety Protection Acts (the U.S. PVPA dates back to 1970), granting breeders exclusive rights to market and reproduce new seed varieties for up to 20 years. These rights allow recovery of research costs and foster continuous innovation across the sector.

Advocata’s Proposal : Pass a Plant Variety Protection Act

Advocata recommends that Sri Lanka draft and enact a Plant Variety Protection Act within the next year. The legislation should balance breeder rights with farmers’ freedoms to save and exchange seed. Properly designed, it would unlock private investment in climate-resilient and high-yield crops, boost productivity, and strengthen food security.

After two failed attempts in 2000 and 2011, this reform is long overdue. This is essential if Sri Lanka is to build a modern, competitive, and climate-ready agricultural economy.

3. Accelerate Bim Saviya: From Bureaucracy to Growth Enabler

The Bim Saviya land titling program, launched in 1998, promised to replace the old, insecure deed system with a modern, state-guaranteed title registry. Yet after 25 years, fewer than 1.1 million of Sri Lanka’s 16 million land parcels are titled. At this pace, the program would take centuries to complete.

This failure has left Sri Lanka with a confusing dual system, weak property security, and “dead capital” locked in untitled land. The causes are well known: fragmented institutions, outdated laws, staff shortages, and minimal trust in the title certificates themselves.

The economic cost is immense. Land accounts for nearly 70 percent of household wealth, yet most of it cannot serve as collateral for credit or investment. Studies show that clear titles can raise access to finance by up to 30 percent in comparable economies.

Advocata’s proposal: Implement Bim Saviya as an economic reform, not just an administrative exercise.

• Modernize the Redraft the 1998 Act within 12 months through a joint Justice Ministry and Bar Association taskforce. Clarify rules on co-ownership, temple and state land, and compensation for administrative errors.
• Focus on high-value regions. Prioritize the Western Province and urban areas where credit and real estate activity are highest.
• Unify governance. Merge key functions under a Cabinet level delivery unit, accredit private surveyors, and link registries digitally through the Integrated Land Information and Automation System (ILAS).
• Build public confidence. Launch a national “Title = Credit, Security & Growth” campaign and fund the Title Insurance mechanism.

Countries such as Rwanda, the Philippines, and India have proven that large-scale titling can be done quickly and cheaply if treated as a national mission. Sri Lanka must follow that example because property security is the foundation of both economic inclusion and fiscal revenue.

4. Phase Out Para Tariffs to Restore Competition

Protectionism has long been Sri Lanka’s comfort zone. Layers of Cess, Port and Airport Levy (PAL), and other para tariffs have insulated domestic producers from competition while raising costs for consumers. The results speak for themselves. By 2019, trade openness had fallen from over 100 percent of GDP in 2000 to just 63 percent. Exports declined from 33 percent to 23 percent of GDP, and industries shielded for decades remain uncompetitive.

The government’s National Tariff Policy, approved in 2024, aims to simplify the structure to four bands (0, 10, 20, 30 percent) and gradually eliminate para tariffs under IMF and World Bank-supported programs. But implementation has been painfully slow and inconsistent.

Advocata’s proposal: Use Budget 2026 to fast track tariff reform by:

• Finalizing the full elimination of Cess on manufacturing by end 2025 as initially
• Publishing a transparent roadmap for PAL removal within five
• Fully operationalizing the National Tariff Policy Committee to oversee progress and report publicly.

A transparent, rules based tariff system reduces corruption, improves export competitiveness, and lowers prices for consumers, delivering tangible gains for both firms and households.

5. Modernize Social Protection: From Burden to Backbone

Sri Lanka’s employment based social security system is outdated and unsustainable. It rests on three weak pillars:

• The EPF, a state-run savings monopoly, invests 95 percent of its assets in government securities, tying workers’ retirement savings to fiscal risks rather than market
• Public sector pensions, fully funded by the Treasury, have become fiscally explosive as life expectancy rises. By 2023, salaries and pensions consumed 43 percent of government revenue.
• No unemployment insurance, leaving workers vulnerable to sudden income shocks and discouraging formal hiring due to high dismissal costs.

Advocata’s proposal: Build a three-pillar contributory model:

1. Transform the EPF into a multi-fund system managed by licensed private fund managers under strict oversight. Diversify investments into equities, corporate bonds, and infrastructure to deliver real returns while ensuring strong regulatory, oversight and transparency to safeguard contributor’s savings.
2. Introduce a contributory public sector pension scheme for new entrants, co-funded by employees and government. This would gradually replace the current defined-benefit model and create parity with private workers.
3. Establish a national unemployment insurance fund, jointly financed by employers and employees, offering short-term income support and retraining. This replaces unpredictable severance with predictable contributions.

Together, these changes would strengthen household security, improve fiscal sustainability, and channel long term savings into productive investment.

A Reform Package That Serves Both Growth and Fairness

Each of these reforms, tax credits over exemptions, intellectual property for innovation, land titling for investment, tariff rationalization for competition, and social security modernization

addresses a different bottleneck in Sri Lanka’s growth model. But collectively, they represent one principle which is a smarter state that rewards results, not privilege.

They are also fully compatible with the IMF program’s objectives, boosting revenue efficiency, improving fiscal discipline, and reducing systemic risk without compromising growth.

Budget 2026 should therefore not be another balancing act between austerity and appeasement. It should mark the moment Sri Lanka shifts from survival to strategy:

From exemptions to performance,from fragmentation to coordination,from short term fixes to structural renewal. Sri Lankans have already shown resilience. Now policy must match that resilience with reforms that are targeted, transparent, and transformative.