A number of Sri Lankan private sector banks have progressed in discussions with multinational payments technology company Paypal, to enable the service for Sri Lankan freelancers and small businesses, Telecommunications Regulatory Commission of Sri Lanka (TRCSL) Chairperson Waruna Sri Dhanapala said yesterday (25).
“I spoke to a relevant official at the Central Bank involved in banking oversight and payments. Officially there is no such announcement made yet. However, there is progress made among certain private sector banks with Paypal,” Dhanapala said, addressing a press conference.
“I think it is in the last stage of finalisation, that’s what the CBSL has also indicated.”
The Sri Lankan Central Bank has been in discussions with the fin-tech company to enable the service for Sri Lankans for almost 15 years, although to no avail in the past. Former President Ranil Wickremesinghe too had announced the facilitation of the e-commerce transaction platform in 2023.
Though the progress on discussions appear to be a positive development, the anticipated application of the 18% Value Added Taxes (VAT) effective from April 1 this year has left Sri Lankan freelancers and small businesses operating on freelance marketplace platforms wary of the impact this may have on their earnings.
If implemented, PayPal would be required to charge an additional 18% VAT on top of its existing transaction fees for its services to Sri Lankan users, as the tax is targeted to digital services provided by non-resident foreign companies selling to consumers in Sri Lanka.
The Sri Lankan Government in February of 2025, announcing the budget indicated that in place of not pursuing the IMF recommended Imputed Rental Income tax, it was to compensate for the loss of potential revenue through pursuing the introduction of VAT on digital services.
This measure was announced among a host of other taxes such as the levying of a corporate income tax on the export of services; as part of its broader compliance with the IMF’s revenue consolidation programme.
“So far there has been a limiting of inward remittances in Sri Lanka, so there are measures taken to reduce these barriers,” Dhanapala continued.
“What we saw before was that due to the inability of opening a [Paypal] account from Sri Lanka, most businesses and individuals would use alternate means such as using the foreign accounts of friends. So there is a level of remittances lost because of these barriers.”
“If this facility is enabled, under the Sri Lankan Central Bank regulatory mechanism, local service providers will be able to receive their payments through an accepted, transparent channel, and if there is a tax that is applicable, there is a benefit for the Government too,” Dhanapala said.
From April onwards, all foreign digital service providers selling to Sri Lankan consumers will be mandated to register for Sri Lankan VAT on their sales to locals. They are to charge the standard VAT rate (18%) on the digital services fees and remit it to Sri Lankan tax authorities.