Opposition Leader Sajith Premadasa has strongly criticized the government’s proposed amendments to the Value Added Tax (VAT), warning that the comprehensive changes scheduled to come into effect from July 1 will constrain businesses rather than promote economic growth.
In a statement posted on ‘X’, he said:
“Sri Lanka widens the VAT net, raises rates, and tightens enforcement all at once. SMEs dragged in. Financial services taxed higher. Digital economy captured. And compliance burden increased. This isn’t reform. It’s extraction. You cannot tax an economy into growth. If businesses can’t breathe, they won’t survive or thrive. And if they don’t survive what exactly will be left to tax?”
The VAT Amendment Bill, which was released on April 29, proposes lowering the VAT registration threshold from Rs. 60 million to Rs. 36 million per annum, thereby bringing a larger number of small and medium enterprises into the tax net. It also introduces VAT on digital services supplied by non-resident companies to Sri Lankan consumers, while increasing the VAT rate on financial services from 18% to 20.5%.
The Bill further outlines stricter enforcement provisions, including an increase in fines for tax-related offences up to Rs. 1 million, along with potential imprisonment of up to six months. In addition, VAT-registered businesses will be required to implement Inland Revenue Department-approved secured point-of-sale systems to enable real-time transaction reporting.
Other provisions in the proposed legislation include the public disclosure of registered taxpayers, revisions to input tax regulations, and exemptions granted to strategic businesses operating under the Colombo Port City framework.
