Sri Lanka Introduces Sweeping VAT Reforms Including Digital Tax and Threshold Reduction

Sri Lanka has enacted a Value Added Tax (VAT) reform Bill, set to take effect on July 1, 2026, introducing several key changes. The financial sector will see a consolidation of the current 18% VAT and 2.5% Social Security Contribution Levy (SSCL) into a single 20.5% VAT rate, aimed at simplifying tax structures. Furthermore, the annual VAT registration threshold has been reduced from Rs. 60 million to Rs. 36 million, bringing more businesses under the tax net. The reforms also introduce VAT on digital services provided by foreign entities to Sri Lankan consumers. The Bill, which was published in the government gazette and subsequently passed in Parliament, aims to modernize the tax framework.