• Cites negative impact on consumers, small-scale businesses, online importers/retailers, social media-based businesses, online transactions   

The main Opposition, the Samagi Jana Balawegaya (SJB), expressed concerns that the new taxes imposed on digital services and on goods purchased via online platforms would have a considerable negative impact on consumers and on small-scale business owners.

The issue was discussed during a press briefing held yesterday (9), where former SJB Parliamentarian Thushara Indunil Amarasena criticised the Government’s tax policies, which he claimed go against the tax policies that the Government promised before its election.

“This digital tax inconveniences not only those who import goods online and sell, but this Value Added Tax (VAT) also inconveniences those who engage in various activities through social media platforms. At the same time, this digital tax seriously affects those who promote local goods via social media platforms. The weight of the Government’s attempts to fill the Treasury with tax income is on the people including those who run small businesses online,” he said, adding that this tax will be applicable to all online transactions including when booking a hotel room.

Amarasena claimed that despite the Government increasing taxes, the public has not received proportionate benefits.

The Government announced this week that it is to introduce an 18% VAT on digital services provided by non-resident companies to local consumers, effective from 1 October. Accordingly, foreign service providers are required to register for VAT in Sri Lanka and collect the tax on their services. The VAT law was updated through the VAT (Amendment) Act, No. 4 of 2025, which implemented VAT on digital services. Regarding this new digital tax, the new VAT rules define terms such as ’electronic platform’ and ‘non-resident person’ and impose obligations on foreign digital service providers to charge and remit VAT on various services, including streaming, online gaming, and software as a service (SaaS). Electronic marketplace facilitators may also be liable for VAT reporting on third-party sales. Accordingly, the non-resident must first obtain a Tax Identification Number before proceeding to acquire VAT registration. VAT registration is required only if the value of the supply in the last 12 months exceeds Rs. 60 million per annum or Rs. 15 million in the last three months. Non-compliance with registration requirements could also lead to penalties from the Inland Revenue Department. 

With the enforcement of new regulations, the following services are likely to become liable to VAT collections; electronic-commerce services, cloud computing, SaaS, cybersecurity services, digital marketing and advertising, information technology support and managed services, streaming services, financial technology, subscription and membership websites, e-commerce platforms, social media platforms, on demand service platforms, content sharing platforms, cloud collaboration platforms, marketplace platforms, gaming platforms, Blockchain and non-fungible token platforms, and apps for hotel bookings and ticket reservations.