The Inland Revenue Department of Sri Lanka has announced significant amendments to the Value Added Tax (VAT) Act, following the certification of the VAT (Amendment) Act No. 04 of 2025 on 11th of April 2025.
From 1st of Octomber 2025, VAT will be applied to digital services provided by non-resident entities through electronic platforms to users in Sri Lanka.
Detailed registration and compliance procedures for these digital services will be announced by the Commissioner-General.
The existing Simplified VAT Scheme will be abolished from 1st of Octomber 2025, and replaced by a new Risk-Based Refund Scheme.
Under the new scheme, eligible exporters and businesses supplying more than 50% to strategic or specified projects will receive VAT refunds within 45 days, subject to correct documentation.
All commercial importers and exporters must now register for VAT regardless of their turnover or exemption status.
New VAT exemptions have been introduced, including the supply or import of chemical naphtha for electricity generation by the Ceylon Electricity Board.
Additionally, liquid milk and yogurt made with at least 50% locally produced fresh milk will be exempt from VAT.
Conversely, the VAT exemption on the import of aircraft engines and spare parts under specified codes has been removed.
These changes are aimed at improving VAT system efficiency, promoting local industries, and aligning with international tax standards.
