International benchmarks call for spending between 4 to 6 percent on education (Pix courtesy http://www.globalpartnership.org)
By Mirudhula Thambiah
Sri Lanka’s education system faces a critical test as the government prepares its upcoming budget, with experts warning that funding decisions could determine whether children finally gain access to schools with much resources or continue to bear the cost themselves. Human Rights Watch (HRW) emphasises that the upcoming budget is a crucial moment, since reducing allocations for education could directly affect children’s ability to pursue a solid education.
Economic policies undermining education
A new report from HRW, “Tax Giveaways, Struggling Schools,” released recently paints a sobering picture of how government policy choices have undermined human rights, particularly the right to education of children. The report links the economic crisis that gripped the country to disastrous tax policies, showing that chronic underfunding of essential services like health, education and social security has long been burned into Sri Lanka’s governance.
The HRW report finds that corporate tax incentives, low taxation of personal income and wealth and key gaps in tax enforcement have created a system that affected citizens in two major ways; it worsens economic crises, and starves essential services of funding, impeding decades-long inadequate revenues to drive progressive realization of economic social and cultural rights.
Education has borne the brunt. The report details how a decline in Sri Lanka’s tax-to-Gross Domestic Product (GDP) ratio, starting in the late 1970s and worsened by steep 2019 tax cuts, has led to declining government spending on schools. Parents often have to pay for basics, from textbooks to exam papers, simply to keep classrooms running. Meanwhile, the country’s reliance on indirect taxes such as Value Added Taxes (VAT) on goods and services that disproportionately affect the poor.
The HRW report also situates Sri Lanka’s challenges within a global context. The country’s ability to raise revenues from wealthy individuals and multinational companies is limited by an international tax system that often favours the rich. Domestically, the report stresses, the government must act to mobilise maximum available resources as required by the International Covenant on Economic, Social and Cultural Rights (ICESCR).
Hopes for reform amid new government
The report highlights that following the 2024 elections, which brought Anura Kumara Dissanayake as President, hopes are high for reform. The HRW report urges the new government to overhaul tax policies, close regressive loopholes, and increase revenues from personal income and wealth while phasing out corporate tax incentives without clear justification.
The HRW report further states that tax policy is not just an economic tool, but a human rights obligation. International law requires governments to use all available resources to ensure rights to education, health, social security, and an adequate standard of living. In April 2025, the UN Committee on Economic, Social and Cultural Rights emphasised that tax systems must be progressive, adequate and non-discriminatory, while policymaking should be transparent and evidence based. States must also cooperate internationally, supporting equitable global tax rules and avoiding policies that undermine other governments’ ability to raise adequate tax revenues to realise rights.
The HRW report further notes that Sri Lanka’s 2022 debt default worsened the economic crisis, with foreign reserves plunging to $1.9 billion and debt-to-GDP hitting 114 percent. The subsequent $3 billion International Monetary Fund (IMF) bailout was aimed at reducing debt to 95 percent of GDP by 2032. In 2024, interest payments amounted to 57 percent of Sri Lanka’s total tax revenue. The report pointed out that this overwhelming figure reflects the impact debt service payments can have on government budgets and on available funds for social spending that improves wellbeing and improves rights.
While in Sri Lanka, we’ve been traditionally more focused on civil and political rights because of the gravity of the crimes during the war, we want to turn our attention also to this. And what we have seen, what our report finds is that there is a strong correlation between failures in tax policy and the right to education”
Federico Borello, Interim Executive Director of HRW
The report states that in March 2022, Sri Lanka’s tax-to-GDP ratio was just 7.4 percent, among the lowest in the world. Around 90 percent of Sri Lanka’s revenue come from taxes. Although there is no international benchmark for revenues, research by World Bank economists has identified 15 percent as “tipping point” for countries to generate adequate investment in health, education, and infrastructure. However, the report states this is a low threshold from a human rights viewpoint as international benchmarks call for spending 5 percent on health and 4-6 percent on education. Between 2021 and 2024, VAT rose to 20 percent, exemptions on products like food, staples and school stationery, aggravating the impact of cost increases on families amidst surging inflation. The report states that this removed fuel and electricity subsidies without relief to assist people survive increased cost.
Chronic underfunding and education disparities
The HRW highlights that Sri Lanka’s current tax challenges are decades in the making. A major blow came with the 2019 tax cuts under President Gotabaya Rajapaksa, but later resulted revenue losses exceeding 2 percent of GDP, according to the IMF. HRW report pointed out this as one of the key factors that catastrophically pushed down Sri Lanka’s tax- to GDP ratio.
The HRW report underscores that Sri Lanka’s tax system fails on two key human rights benchmarks, such as adequacy and progressivity. Corporate tax incentives, low taxation of personal income and wealth and tax abuse enabled by lack of administrative capacity and corruption. These loopholes contribute to make Sri Lanka unable to meet its human rights obligations thus making the system regressive. HRW report also states that in 2022, all tax exemptions cost LKR 978 billion ($2.7 billion) — 56 percent of total revenue and nearly three times the education budget. Personal income taxes reach just 204,467 filers in a population of 22 million. Reliance on VAT, now projected at over one-third of revenues, disproportionately impacts the poor.
HRW report highlights that Sri Lankan law provides for free primary and secondary education. However, HRW found that inadequate tax revenues have contributed to chronic underfunding of Sri Lanka’s education system, which undermines children’s right to education. While ostensibly free, public schools in Sri Lanka often charge families development fees, exam fees, and even assessments for water and electricity. Principals and education officials told Human Rights Watch that schools had no choice, but to charge these fees because the money they receive from the government isn’t enough to cover basic things like cleaning and supplies. When parents do not pay, schools are forced to go without these resources, while schools with wealthier families have access to more resources, creating significant disparities between schools based on parents’ income
Recommendations and way forward
The report pointed out that, even with many families bearing high education costs, there are various signs that the learning outcomes are faltering. The impact of inadequate spending on the right to education often goes beyond what is easily measured; it can be hard to capture in number the ways students’ experience could be improved with more funding. Further the report states that however available data indicates that despite Sri Lanka’s early edge in education, it now appears to be falling behind peer countries. It is difficult to compare Sri Lanka with other countries since it does not participate in international education assessments, but available data indicates, for example, that students are failing qualifying exams at higher rates than lower-middle-income countries. Moreover, the gap between learning outcomes for wealthier and poorer students is widening.
HRW states that the barriers to children’s right to education in Sri Lanka are multiple, but they stem at least in part from chronic underfunding of public education. In 2022, spending on education made up a paltry 5 percent of government expenditures and 1.5 percent of GDP, the third lowest in the world, behind only Laos and Haiti. This is far short of the goals set by international benchmarks that call for at least 15 to 20 percent of public expenditure and/or 4 to 6 percent of GDP. While Sri Lanka experienced periods of strong GDP growth in the ensuing decades, this growth — while raising education spending in real terms — did not translate into gains commensurate with the economy’s growth, and so it has fallen behind countries in its income group.
The HRW report emphasises urgent reforms for Sri Lanka to align tax and social policies with human rights obligations. HRW states that the government should rescind the Strategic Development Projects Act and Port City Act, replacing them with laws that permit corporate tax exemptions only when clearly justified, time-bound, approved by Parliament, and accompanied by cost-benefit analyses published regularly. A full public audit of existing exemptions is recommended, with action taken to suspend or adjust incentives where needed. Reforms should make taxes more progressive, increasing revenues from property, inheritance, and wealth, while reducing regressive consumption taxes like VAT, especially on essentials such as food, education, and healthcare.
The report urges the government to expand universal social security, strengthen the Inland Revenue and Customs agencies to collect taxes effectively, tackle corruption, and actively support the UN Framework Convention on International Tax Cooperation to curb harmful tax practices and illicit financial flows.
HRW also recommends reforms in the education sector by calling to prioritise social spending to meet international benchmarks like 4-6 percent of GDP for education and 5 percent for health — ensuring funds cover infrastructure, equipment, teacher training, and learning outcome monitoring. Teacher salaries should be competitive, spending transparency strengthened, and all school fees abolished at pre-primary and primary levels. Programs for free meals, school transport, and equitable access should be implemented, including a second meal in economically deprived areas.
Further the report also states that the IMF should ensure debt sustainability assessments leave governments with the resources to meet human rights obligations, consider the benefits of public spending, and conduct distributional impact assessments across income, women and marginalized groups. It should support raising direct taxes, curtail corporate exemptions, reduce regressive taxes, and ensure transparency, including publication of tax incentives and beneficiaries. Loan programs should include spending floors for all rights, including education, and IMF policies must not hinder the United Nations Framework Convention on International Tax Cooperation.
As Sri Lanka prepares its upcoming budget for 2026, HRW is warning that the allocations could determine the future of the country’s education system. Deputy Director for South Asia at HRW Meenakshi Ganguly said, “This is a government that has come in with a lot of expectations from the people and therefore, while we understand the pressures that they might be under, it is also very important that they don’t forget the basis for why people have trusted them, both in the North and in the South. It has been a unifying pledge,”
She also stated that it is very important that this government acts on those pledges. “People are already saying it’s been one year, nothing has happened. We also understand governments. For instance, this report is not about this government’s policies, it’s policies they inherited. But this is something that this government could act on to make changes to deliver rights to the Sri Lankan people. Also they’re going soon into a budgetary process, that’s a really important moment also for the present civil society to follow that process and make sure because it’s a technical process, but it has very real-life implications. Out of the budgetary process, you reduce the amount for education, if there’s less money, you’re going to have less results in terms of achieving those rights,” she said.
Meanwhile, Interim Executive Director of HRW Federico Borello said, “We at Human Rights Watch firmly believe that when we talk about human rights, we talk about civil and political rights, but also about economic and social rights. All these are human rights. Therefore, while in Sri Lanka, we’ve been traditionally more focused on civil and political rights because of the gravity of the crimes during the war, we want to turn our attention also to this. And what we have seen, what our report finds is that there is a strong correlation between failures in tax policy and the right to education. Sri Lanka used to have one of the best education systems for a middle-income country back in the 1950s,”
He further added, “It’s not the case anymore. It kept declining as the amount of taxation vis-à-vis GDP, the global, has been going down. There were less resources. Less resources were allocated to education, and this is the result that you get. What we are advocating for is for this detailed recommendation, but basically to strengthen the taxation system, then the government can allocate properly to sectors like education and health with specific targets of the total amount and the percentage of GDP,”
“This year also we are planning to increase the allocations for education”- Deputy Minister Mahinda Jayasinghe
Speaking to Daily Mirror, Chairman of the Parliamentary Sub-Committee on the Establishment of the Education Council Deputy Minister Mahinda Jayasinghe said, “We increased the allocations for education and health in the 2025 budget. This year also we are planning to increase the allocations for education,” he added. “This year, it’s closer to 5 percent economic growth. At the end of the year, we expect it will be 5 percent. From at least 2027 and 2028, we expect 9-10 percent economic growth. Then, we will be able to allocate more funds for education,” he added. Responding to a query on schools depending on parental fees for essential resources, Jayasinghe said that such collections are only permitted under approved proposals. “They should prepare a development proposal. According to that proposal only they should collect money. Except that, they cannot collect money. If they’re collecting money except that, then that is prohibited,” he said. He added that a circular has already been introduced regulating these collections. “According to that circular, they cannot collect money without preparing a proposal. The provincial schools should get permission from the provincial ministries, and national schools should get permission from the Ministry of Education.”
