The VAT (Amendment) Act No. 14 of 2026 was certified on 30 June 2026, and the Inland Revenue Department issued Notice SEC/PN/VAT/2026-03 on 3 July 2026. It introduces 15 key changes to the Value Added Tax Act No. 14 of 2002. Here is what changed and what it means for your business.
At a glance
| IRD notice | SEC/PN/VAT/2026-03 dated 3 July 2026 |
| Amendment Act | VAT (Amendment) Act No. 14 of 2026, certified on 30 June 2026 |
| Principal Act | Value Added Tax Act, No. 14 of 2002 |
| Key effective dates | 1 October 2025 and 1 July 2026 |
| Headline changes | 20.5% VAT on financial services · VAT on non-resident digital platforms · fines of up to LKR 1 million for fraud and evasion |
Effective timeline
| Date | What takes effect |
|---|---|
| 1 October 2025 | Zero-rating for garment buying offices begins; the higher penalty tier (up to LKR 1 million) applies to offences from this date. |
| 30 June 2026 | VAT (Amendment) Act No. 14 of 2026 certified. IRD notice issued on 3 July 2026. |
| 1 July 2026 | Platform VAT, the 20.5% rate on financial services, new offences and proceedings, new exemptions and definitions, and the film exhibition and project import rules. |
Supply, registration and digital platforms
1. Film exhibition services: value of taxable supply
From 1 July 2026. Where film exhibition services are provided through ticket sales, the entertainment tax charged by the local authority under the Entertainment Tax Ordinance (Chapter 267) may be deducted when calculating the value of the taxable supply, in addition to any other deductions permitted under Section 5(8) of the VAT Act.
2. Zero-rating for garment buying offices
From 1 October 2025. Services provided by a garment buying office registered under the Industrial Promotion Act No. 46 of 1990 to overseas buyers are treated as zero-rated supplies, provided that:
- the customer is located outside Sri Lanka; and
- payment for the service is received in foreign currency.
3. VAT registration thresholds: unchanged
The proposed reduction in the registration threshold has been abandoned. Registration remains mandatory where taxable supplies exceed, or are likely to exceed:
- LKR 15 million in any taxable period (quarterly); or
- LKR 60 million in the twelve-month period then ending (annual).
4. VAT on electronic platform services by non-residents
From 1 July 2026. VAT applies to services supplied by non-resident persons through electronic platforms to customers in Sri Lanka. A non-resident must register under Section 25L(1) where such services:
- exceed LKR 60 million (or the foreign currency equivalent) in any consecutive 12-month period; or
- exceed, or are likely to exceed, LKR 15 million in any quarter beginning on or after 1 July 2026.
Registration applications must be submitted electronically within three months of becoming liable, or of the Commissioner-General specifying the form, whichever is later.
B2B carve-out (Section 25N): VAT is not charged on platform services supplied by a non-resident where the recipient is a VAT-registered person in Sri Lanka. Further guidelines on registration, charging, payment and compliance are to follow.
Compliance, rates and administration
5. Submission of VAT schedules
A registered person may submit the schedules relating to a VAT return from the beginning of the relevant taxable period. RAMIS supports this through:
- uploading Excel files in CSV format;
- direct entry through the IRD e-Service Portal; or
- Web API integration between the taxpayer’s ERP system and RAMIS, enabling real-time transfer of invoice information.
6. Disallowance of input tax on project imports
From 1 July 2026. Where VAT on plant, machinery, equipment or vehicles imported for projects was deferred on the assurance of re-exportation, and the items are not re-exported within one month of project completion, any VAT subsequently paid will not be allowed as deductible input tax.
7. Financial services: VAT rate of 20.5%
From 1 July 2026. For taxable periods commencing on or after 1 July 2026, the VAT rate on the supply of financial services is 20.5%.
SSCL interaction: under Item 25, Part II of the First Schedule to the SSCL Act No. 25 of 2022 (as amended), financial services subject to VAT at 20.5% are exempt from the Social Security Contribution Levy.
8. Write-off of tax in default: tsunami relief projects
The Commissioner-General shall write off tax in default under the VAT Act in respect of taxable supplies made for tsunami relief projects, where payment of VAT on those supplies had been undertaken by the Government of Sri Lanka.
9. Secured point-of-sale (POS) machines: mandatory use
Every VAT-registered person must, within three months of the date prescribed, use secured POS machines for all transactions, the issuance of invoices, and the management and maintenance of records relating to taxable activities. Machine specifications will be prescribed by the Commissioner-General in due course.
Penalties, enforcement and transparency
10. Increased penalties for tax fraud, evasion and fraudulent refunds
Under Section 66, evading tax, wilfully and fraudulently claiming (or attempting to claim) a refund, or assisting another person to do so, is an offence triable summarily before a Magistrate.
| Offence committed | Penalty |
|---|---|
| Before 1 October 2025 | A fine equal to twice the tax evaded or attempted to be evaded, plus a fine of up to LKR 25,000 or imprisonment of up to six months, or both. |
| On or after 1 October 2025 | A fine equal to twice the tax evaded or refund fraudulently claimed (including misrepresentation, false or misleading information, or concealment of material facts), plus a fine of up to LKR 1,000,000 or imprisonment of up to six months, or both. |
11. New offences for VAT returns and compliance
From 1 July 2026. The following are added as offences under Section 67:
- obtaining or attempting to obtain a refund by fraud, misrepresentation, false or misleading information or documents, or concealment of any material fact; and
- failing to furnish valid tax invoices, customs goods declarations or other authenticated documents required under Section 21.
On conviction: a fine of up to LKR 25,000 (offences before 1 October 2025) or up to LKR 1,000,000 (offences on or after 1 October 2025), and/or imprisonment of up to six months.
12. Criminal proceedings under the VAT Act
From 1 July 2026. Under Section 68 as amended, the Commissioner-General may investigate any offence under the Act, the Attorney-General (or a person authorised by the Attorney-General) shall prosecute, and all criminal proceedings are instituted in the name of the Commissioner-General.
13. Publication of VAT-registered persons’ information
Notwithstanding Section 73(1), the Commissioner-General shall publish the name, address, Tax Registration Number and registration status of every registered person. This supports administration and enforcement, public transparency, the identification of tax-compliant entities, and the operation of Section 25N.
Definitions and new exemptions
14. New interpretations under Section 83
From 1 July 2026. New definitions have been added for VAT on services supplied by non-residents through electronic platforms: electronic platform, fixed place, marketplace in relation to educational courses and non-resident person.
15. New exemptions
From 1 July 2026, the following are exempt:
- Supplies of goods or services to any business approved as a Business of Strategic Importance under Section 52 of the Colombo Port City Economic Commission Act, No. 11 of 2021 and its regulations.
- Educational services supplied through an electronic platform by a non-resident person, such as online courses, seminars, training, digital education platforms, virtual classrooms, LMS and marketplace courses.
- Healthcare services supplied through an electronic platform by a non-resident person, such as online consultations, digital prescriptions, AI-assisted diagnostics, digital health tracking and telemedicine.
- Services supplied to organisations or diplomatic missions specified under relevant written laws or Government agreements.
How do these changes affect your business?
From platform VAT registration and the 20.5% financial services rate to secured POS requirements and strengthened penalties, our tax advisory team can help you assess your exposure and stay fully compliant. Call +94 759 977 990 or +94 112 719 762, or email [email protected].
This summary is based on IRD Notice SEC/PN/VAT/2026-03 dated 3 July 2026 and is provided for general information only. It does not constitute professional advice. Please consult us before acting on any matter covered here.