When it comes to separation of religion and governance, most Buddhist scholars wholeheartedly agree with the movement by western secular groups to separate the Abrahamic religions and the state. However, they argue that Buddhism is not a religion and hence the same approach is not valid for Sri Lanka.
For those who like to claim that Buddhism is a philosophy and not a religion, my short answer would be that; Yes, Buddha’s teaching could be a philosophy in the same sense that Deism (http://en.wikipedia.org/wiki/Deism) is a philosophy. Buddhism is a religion in the same sense that Christianity or Islam is a religion.
I have touched upon this topic in several places in the above essay. However, seeing that this is a recurring theme, I thought of dedicating an appendix to summarize my views on this topic in point form.
Buddha may not be a god, Buddhist philosophy may have been meant to be a religion, and moreover it's philosophical underpinning could be fascinating and intricate. Buddhism may not simply be a set of ideals to live by, but it may be presenting you with a workable system that anyone can benefit from. However, non of these facts elevate the Buddhism -as it is practiced in Sri Lanka- above the plain that all other major world religions operate.
1) Personal belief vs. institutionalized belief: As far as scope of “separation of governance and religion” is concerned, I have no issues with personal belief systems. As long as Buddhism or any other religion remains a personal belief/value system and a way of life, it does not concern governance. It is the institutionalized form of the belief that is concerning to a secularist. How the institutionalized Buddhism and it's clergy operate in Sri Lanka is not fundamentally different from how pre-renaissance era church and its clergy operated in Europe.
2) In theory, there is nothing god-given in Buddhism, and every rule is a suggestion for a voluntary personal undertaking. However, Buddhism in its practical form is very much a "religion" having all the bells and whistles of a regular world religion. What exactly are these bells and whistles that I was referring to? To name a few: Hierarchical structure for clergy, highly opinionated body of clergy and lay people providing guidance to the followers, rituals, chanting, choir, sacred footprints, sacred relics, idol worshipping, superstition, claims of miracles, promise of ‘divine protection’ and ‘good luck’ for those who serve the interests of the institution and its clergy, etc.
3) Above and beyond all of other factors, the telltale sign of a ‘religion’ is the claims of miracles. Nature of these Miracles are surprisingly common across all monotheistic, polytheistic, and even the non-theistic religions such as Buddhism. The large number of Buddhists who saw “Budu Res” on the famous “Day of Budu Res” few years in to the new century (exact year I cannot recall now) is a testimony of gullibility created by religious faith. Also in the aftermath of the 2004 Tsunami, a lot of religious idols from various faiths claimed to have been miraculously saved, Buddha statues topping the list. (Nobody of course talked about non-religious structures like lighthouses that were unscathed due to their peculiar structural qualities). The 'Budu Res' and other 'miracles' associated with Somawathie Stupa is a more recent development along the same lines.
4) Buddhist philosophy at its very core, teaches that its teaching itself is not an objective truth. Lord Buddha used the famous 'raft metaphor' to drive this point home. He compared his teaching and the philosophical model in Buddhism as a raft that helps to cross the river. When the river is crossed, one can abandon the raft, rather than carrying it along the journey beyond. In essence, any of the philosophical models within Buddhism is not regarded as objective truths even within the philosophy itself. However, in contemporary Buddhism in Sri Lanka, this concept is seldom mentioned, and on the contrary, any metaphor used within Buddhism is regarded as unquestionable and holy truth. The current practice of institutionalized Buddhism has little or no correlation to the core teachings of Buddha.
The Buddhism in Sri Lanka as we know it today is a result of couple of millennia worth of assimilation of tradition from various cultures and religions. Just to give one example of assimilation of tradition, the worship of sacred footprints of religious nature is surprisingly common across all religions as shown this following wiki article
It would be interesting to compare the all knowing all powerful "Creator God" concept and the concept of "Holy Book" with the notion of all knowing single person who existed in the past, who figured it all out, and passed that knowledge down in oral tradition which is now documented in a "Holy book". Apart from the qualitative aspect of the teaching itself, semantically, do we see a difference?