Sajith warns VAT changes will ‘suffocate’ businesses

Tuesday, 5 May 2026 00:24 - - {{hitsCtrl.values.hits}}

Opposition Leader Sajith Premadasa

Opposition Leader Sajith Premadasa yesterday slammed the Government’s proposed amendments to the Value Added Tax (VAT) regime, warning that the sweeping changes due to take effect from 1 July would place unsustainable pressure on businesses, particularly small and medium enterprises (SMEs).

In a post via ‘X,’ Premadasa noted that the Government was simultaneously widening the tax base, increasing rates, and tightening enforcement at a time when businesses were already under strain.

“From July 1, Sri Lanka widens the VAT net, raises rates, and tightens enforcement all at once. SMEs dragged in. Financial services are taxed higher. Digital economy captured. And the compliance burden increased. This isn’t reform. It’s extraction,” he said, arguing that economic growth cannot be achieved through aggressive taxation.

His observations come after the Government published the VAT (Amendment) Bill on 29 April, proposing a broad overhaul of the country’s indirect tax framework.

Under the proposed changes, the annual VAT registration threshold would be reduced from Rs. 60 million to Rs. 36 million, significantly expanding the number of businesses, particularly SMEs, required to register and comply with VAT obligations. The Bill also proposes to bring digital services supplied by non-resident companies to Sri Lankan consumers under the VAT net from July.

“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?” Premadasa asked.

Among the most notable changes is the increase in VAT on financial services from 18% to 20.5%, a move expected to raise the tax burden on banks and other financial institutions. The proposed legislation also introduces stricter compliance measures, including fines of up to Rs. 1 million for tax-related offences and possible imprisonment of up to six months for serious violations. VAT-registered businesses would additionally be required to adopt Inland Revenue Department (IRD)-approved secure Point of Sale (POS) systems to facilitate real-time transaction reporting.

The Bill also provides for the public disclosure of registered taxpayers, revisions to input tax credit rules, and the continuation of tax concessions for certain strategic businesses operating under the Colombo Port City Economic Commission framework.