Indirect Tax News - December 2020

VAT simplification and rationalisation

Much has changed for the world this year tax wise. Indeed, to encourage economic growth, Sri Lanka has witnessed a plethora of changes from rate cuts to increased tax thresholds.

In this backdrop, the Government Budget for 2021, which was pronounced a fortnight ago, reaffirms the government’s commitment to tax certainty and promises no changes will be made to the current provisions for at least five years. The Budget also walks toward further strengthening the economy by proposing several VAT exemptions to motivate domestic production while safeguarding the exchange rate and foreign currency reserves.

COVID-19 relief measures

In the wake of the pandemic, the Budget has introduced exemptions to provide better benefits directly to the health care sector. For instance, it provides that if, at the request of certain entities, such as the Health Ministry, Departments of Health Services, Tri Forces, and Police, a Board of Investment (BOI) company that supplies or donates health protective equipment and products would be exempt from VAT. Further, a VAT exemption has also been proposed on medical equipment and machinery imported and supplied, or donated, during the pandemic period (20 May to 31 December 2020). 

Voluntary VAT registration

Regardless of not meeting the mandatory VAT registration threshold, suppliers may voluntarily register for VAT. Doing so assists in clearing imports made from foreign suppliers because permanent VAT registration is a gate-pass to dispatch imports from Customs.

Special Goods and Services Tax

To streamline taxes on alcohol, cigarettes, telecommunication, vehicles, and betting/gaming industries, a Special Goods and Services Tax has been introduced. The Special tax is a composite tax that replaces multiple taxes.


Sri Lanka continues to simplify its tax framework, making things easier for taxpayers and collectors while boosting economic growth.

Sarah Afker

Dinusha Rajapakse