• Deputy Minister admits providers sought more time to set up systems
• Govt. still undecided on how VAT will apply to digital bills
• Link to unresolved e-commerce import tax complicates rollout
• Cabinet committee studying modalities yet to release findings

The imposition of Value-Added Tax (VAT) on digital services provided by non-residents to Sri Lankans through online platforms has been postponed, according to Deputy Minister of Digital Economy Eng. Eranga Weeraratne.

This is in order to both assess the modalities of implementation and to allow international digital service providers time to establish the necessary systems. 

Speaking to The Sunday Morning Business, the Deputy Minister revealed that on 3 September, the Cabinet of Ministers had decided to delay the implementation of VAT on the cross-border provision of digital services, which was originally scheduled to take effect on 1 October under the VAT (Amendment) Act No.4 of 2025. 

The new effective date has been postponed to 1 April 2026.

Weeraratne said that the decision to postpone the effective date had been influenced by requests from international digital service providers, who had sought additional time to develop the necessary systems for implementation. 

He further stated that they had postponed the effective date in order to have a look at the exact modality for imposing VAT on digital services, pointing out that although VAT was generally applied on the entire bill amount, in particular instances the tax was applied via different methods.

“We had to look at which component the VAT would be charged on. Is it for the total bill or a portion of it? There are multiple ways in which VAT is applied, even though the law says that the tax is applied to the entire bill amount,” he stated. 

Weeraratne further pointed out that the ongoing issue with regard to the imposition of taxation on e-commerce imports had also influenced the postponement of this digital tax on digital services. 

“We are also looking at multiple options to replace the de minimis rule applicable for small value items,” he said.

The Deputy Minister revealed that the Cabinet of Ministers had appointed a committee to examine the issue and recommend suitable proposals on the best way forward. However, he noted that the committee was yet to publish its findings and that therefore the Government must await its report.

Under the VAT (Amendment) Act No.4 of 2025, digital services provided by non-residents were to have been subject to VAT from 1 October.