Viraj Heenegedara, a Chartered Accountant and Tax Advisor, has expressed his views regarding the taxation and other matters included in the Budget Report presented to Parliament last week by the President and Minister of Finance, Anura Kumara Dissanayake, for the year 2026. These views were shared on the “Tax Advisor” YouTube channel. Below is the full commentary he provided.
On the 7th of November 2025, the President, in his capacity as the Minister of Finance, presented Sri Lanka’s 80th budget. When speaking about this 80th Budget Document, I realized something very clearly as I went through it: this is essentially a digitalized budget. Throughout the entire document, there is emphasis on digitalisation — digitalising government operations, upgrading the Inland Revenue Department’s RAMIS system to version 3.5, and so on. There is also the introduction of the POS system. The POS system was included in last year’s budget proposals as well, and again this time they have mentioned it. It is to be developed in Phase One, Phase Two, and Phase Three. So I observed that a major portion of this budget is dedicated to digitalisation.
In addition to that, there was also discussion about the SVAT system. As we already know, SVAT will be abolished from the 1st of October. That was mentioned once again. Furthermore, they spoke about updating the Strategic Development Project Act and Port City regulations. These will be revised. Now let’s go through the main budget proposals one by one.
VAT & SSCL on Imported Coconut Oil and Palm Oil
The first thing we saw is the proposal to impose Value Added Tax (VAT) and Social Security Contribution Levy (SSCL) on imported coconut oil and palm oil. Previously, a Special Commodity Levy (SCL) was charged on these. That levy was Rs. 150 per kilogram for coconut oil and Rs. 275 per kilogram for palm oil.
However, to create fair competition between imported and locally produced oils, the government has decided to remove the Special Commodity Levy and instead impose VAT and SSCL on these items.
The purpose of this is to eliminate the separate tax method used for imported products versus local products and instead create a level playing field. So the first proposal is that VAT (18%) and SSCL (2.5%) will now be charged on imported coconut oil and palm oil.
VAT & SSCL Registration Threshold Reduction
The second very important proposal concerns the registration threshold for VAT and SSCL. Previously the threshold was:
Rs. 60 million per annum,
Rs. 15 million per quarter,
Rs. 5 million per month.
To simplify this: Rs. 5 million per month is roughly Rs. 166,000 per day.
But now the proposal is that from April 1, 2026, this threshold will be reduced to:
Rs. 36 million per annum,
which equals Rs. 3 million per month.
Dividing that by 30 days gives roughly Rs. 100,000 per day.
This means that if someone’s daily sales exceed Rs. 100,000, they must register for VAT. As a result, a large number of businesses will newly fall into the VAT registration net.
Many may argue that this will burden small businesses. But on the other hand, this also removes unfair advantages where certain businesses previously avoided VAT. Lowering the threshold means more people will be VAT-liable and must charge VAT on their sales.
The disadvantage is that prices of goods and services will increase, because VAT is always ultimately paid by the consumer. It is not paid by the business owner.
Meanwhile, the government also proposes changing the direct-to-indirect tax ratio from 25%–75% to 40%–60%. But at the same time, they are broadening the VAT registration base. This will inevitably increase VAT collections from consumers.
Removal of CESS on Imported Fabric & Introduction of VAT
The third proposal is to remove the CESS tax on imported textiles and replace it with VAT.
Imported fabric currently has a CESS of Rs. 100 per kilogram, but locally produced fabric does not. To ensure equal competition, the CESS will be removed and VAT applied instead.
This change will also take effect from April 1, 2026.
SSCL on Vehicles to be Charged at Import or Manufacturing Stage
The fourth proposal concerns vehicles. Previously, when selling a vehicle in Sri Lanka, SSCL (2.5%) was charged at the point of sale. However, because of specific exemptions for “import and sale,” only around 50% of the true amount was being charged.
There were also legal loopholes that allowed some people to argue that the levy did not apply.
So the new proposal is to remove SSCL from point of sale and charge it instead at:
the time of import, or
the time of local manufacturing.
The President stated that this would not cause a change in retail prices. However, in reality, it is clear that prices will increase, because importers who previously avoided the levy will now be forced to pay the full 2.5% at import.
In the past, if someone imported a vehicle through an LC, they did not pay SSCL. But under this proposal, SSCL will be enforced at the point of import.
Therefore, whether you import a vehicle yourself or buy from a dealer, prices will increase due to the 2.5% levy being fully applied.
National Tariff Policy
Next is the introduction of a National Tariff Policy. A similar proposal existed in past budgets. Sri Lanka’s tax and tariff structure is extremely complex and difficult to understand.
The National Tariff Policy aims to:
simplify the tariff system,
gradually remove certain import duties,
adjust tax rates systematically.
This is a long-pending proposal and, if implemented, will help taxpayers better understand the system.
Improving the Tax Audit Process
The sixth proposal is extremely important. It concerns improvements to the tax audit process.
Currently, when the Inland Revenue Department conducts an audit, they request various documents from taxpayers. For example, when obtaining a refund from the RAMIS system, the department asks for supporting information, and often what initially appears as a refund turns into an additional payment after their review.
The reform aims to:
reduce unlawful interactions,
minimise opportunities for corruption and bribery,
introduce risk-based audit selection handled by a Risk Management Unit,
establish a review committee appointed by the Commissioner General.
This means the audit process will become more transparent and less dependent on direct dealings with individual officers.
This is a very positive step. It will reduce inappropriate behaviour by officers, prevent bribery, and ensure fairness. The Inland Revenue Department has specified disciplinary guidelines for such misconduct.
Updating the Tax Framework for Telecommunications & Anti-Money Laundering
Another proposal is to update the tax framework to match current needs. For example, when calculating the telecommunications levy, issues arise regarding “bad debt recovery.” There have been many amendments in the past, but now a complete update is proposed.
Additionally, under the Anti-Money Laundering Act, Inland Revenue officials will be allowed to share information with the Financial Intelligence Unit (FIU) and other authorised bodies. Likewise, the FIU can obtain information from Inland Revenue.
This is very important because it helps strengthen tax administration and expand the tax net.
