Opposition Leader Sajith Premadasa has strongly criticised the government’s proposed Value Added Tax (VAT) amendments, warning that the sweeping changes due to take effect from July 1 could stifle businesses rather than promote economic growth.
In a statement on X, he argued that expanding the VAT net, increasing rates, and tightening enforcement simultaneously would place excessive pressure on businesses. He stressed that small and medium enterprises (SMEs) would be drawn into the tax system, financial services would face higher taxation, and the digital economy would come under greater scrutiny, all while compliance burdens increase.
Premadasa cautioned that such measures risk undermining business sustainability, stating that an economy cannot be driven to growth through taxation alone. He warned that if businesses struggle to survive, the overall tax base could ultimately shrink.
The proposed VAT Amendment Bill, released on April 29, seeks to reduce the registration threshold from Rs. 60 million to Rs. 36 million annually, bringing more SMEs into the tax net. It also proposes applying VAT to digital services provided by non-resident companies to Sri Lankan consumers and increasing VAT on financial services from 18% to 20.5%.
Stricter enforcement measures are also included, with fines for tax offences rising to Rs. 1 million and the possibility of imprisonment of up to six months. In addition, VAT-registered businesses would be required to adopt Inland Revenue Department-approved secured point-of-sale systems to enable real-time transaction reporting.
The Bill further outlines provisions for public disclosure of registered taxpayers, revised input tax rules, and exemptions for strategic businesses operating under the Colombo Port City framework.
