Tuesday Apr 07, 2026
Tuesday Apr 07, 2026
Tuesday, 7 April 2026 01:51 - - {{hitsCtrl.values.hits}}
The Inland Revenue Department (IRD) has postponed the implementation of Value Added Tax (VAT) on digital services supplied through electronic platforms by non-resident providers to 1 July 2026, subject to amendments to the VAT Act.
The tax, introduced under WEB Notice No. PN/VAT/2025-03 issued on 1 October 2025, was initially due to take effect earlier this year before being moved to April.
The latest revision marks a further delay in the rollout.
The Cabinet of Ministers had in September 2025 approved postponing the digital services VAT to April 2026 after service providers flagged operational challenges.
Digital services industry analysts said most countries around the world have VAT operationalised, hence the inability to copy and execute reflects astounding inefficiency and lack of capacity/capability.
“Non-resident entities are masters of confusion. It’s what they do so well. Our mediocrity is highlighted here,” they opined.
The 18 month-delay from the day of the Gazette has far-reaching implications. Analysts pointed out that one is a multi-billion rupee revenue loss and the other is a lopsided playing field. The latter gives non-residents a 20% price advantage (with the Social Security Contribution Levy) and analysts claim many locals have shut down their digital services businesses.
“Non-residents don’t pass on the entire advantage to locals. They profit from this advantage and funds flow out of Sri Lanka,” they emphasised.
It was also pointed out that the irony was that many locals who are still operating get bullied and harassed by the IRD in their narrow quest to generate tax revenue. “At the very least, the IRD should give the same advantage to locals until they implement the tax for non-residents,” analysts suggested.
The latest deferment decision comes alongside a separate deferral of the new VAT invoice format and specifications for registered persons, which has also been pushed to 1 July 2026 from the earlier 1 April deadline.
In a notice dated 31 March, the IRD said the revised timeline relates to the standardised tax invoice format introduced under prior instructions, with a Gazette amendment to follow.
The requirement was first scheduled for 1 January 2026 but was deferred after VAT-registered entities sought more time to comply. The IRD said the extension applies to the format outlined in paper notice No. PN/VAT/2025-12/1 dated 12 December 2025.
Both measures form part of ongoing efforts to improve VAT compliance and reporting. The delays come amid continued economic strain linked to the Middle East conflict, which has disrupted implementation timelines.
