Indirect Tax News - October 2020

Indirect Tax Regime geared to meet macroeconomic changes

Despite the macroeconomic challenges faced since Indirect Tax News issue 1/2020, Sri Lanka continues to grant significant benefits to taxpayers as a result of the drastically reduced Value Added Tax (VAT) rate of 8% (from the normal rate of 15%) and abolition of the Nation Building Tax (NBT), which used to be levied at 2%.

In addition to the VAT and NBT relief, the government has provided taxpayers with relief designed to encourage post COVID-19 economic stimulation. For example, Executive approval has been granted to suspend all notices issued to banks to recover VAT that taxpayers had defaulted on. The suspension will run through 30 April 2021. This relief provides a financial blanket for small and medium enterprises (SMEs) during these challenging times. It should be noted that this benefit applies to any SME that meets the criteria set out in the Inland Revenue Act No. 24 of 2017 regardless of the nationality of the SME’s shareholders.

As well, to boost the tourism industry, the supply by travel agents registered with the Sri Lanka Tourism Development Authority of inbound tour services has been made exempt from VAT with effect from 1 April 2020. This VAT exemption, together with the conditional VAT exemption granted on the supply of services by hotels, guest houses, restaurants, and other similar services, provides a free-of-charge package of VAT exemptions to foreigners looking to explore the beauty of the island.


Despite the macro-economic challenges, Sri Lanka’s Indirect Tax Regime continues to strategically adapt to such challenges.

Sarah Afker

Dinusha Rajapakse