Wednesday May 13, 2026
Wednesday May 13, 2026
Wednesday, 13 May 2026 11:07 - - {{hitsCtrl.values.hits}}
The proposed reduction in the VAT registration threshold, aimed at increasing Government revenue, has generated growing concern among SME operators and tax professionals.
A tax consultant recently highlighted several practical difficulties that many Small and Medium Enterprises are likely to face if the threshold is reduced without adequate preparation and consultation.
Among the key concerns are:
nLoss of market competitiveness – Many SMEs lack the economic scale, pricing power, and brand strength required to absorb additional VAT-related costs.
nLimited awareness of VAT compliance obligations – A significant number of SMEs are unfamiliar with VAT accounting, filing requirements, documentation standards, and audit exposure.
nIncreased compliance costs – Businesses may be compelled to incur additional expenditure on accountants, tax advisers, software systems, and administrative staff, merely to remain compliant.
nCapital expenditure on POS and invoicing systems – The move could require investments in point-of-sale infrastructure and upgraded accounting systems at a time when many SMEs are already under financial pressure.
These concerns go beyond mere compliance inconvenience. SMEs form a substantial pillar of Sri Lanka’s economy, contributing significantly to employment generation and domestic economic activity. Any abrupt expansion of the VAT net without adequate transition mechanisms could weaken already fragile businesses.
What is particularly troubling is that discussions on these matters often begin only after legislation is enacted or implementation deadlines are announced. By then, businesses are left scrambling to understand and overcome the implications.
Trade chambers and representative bodies must accept some responsibility for this recurring pattern. Too often, chambers remain silent during the Bill stage when constructive and timely engagement can still influence policy. The business community then wakes up only after the law is passed and implementation becomes unavoidable.
Meaningful consultation must take place before tax measures are finalised, not after.
If the objective is broader tax coverage and improved revenue collection, policymakers should also consider:
Tax policy should not merely focus on collection targets. It must also consider economic sustainability, administrative practicality, and the survival of smaller enterprises that form the backbone of the economy.
A balanced approach to the implementation of VAT is essential if Sri Lanka hopes to strengthen revenue without weakening the SME sector that supports it.
(A concerned entrepreneur - Moratuwa)
