The Sri Lankan Government’s attempt to broaden its tax base by lowered the annual VAT registration threshold from Rs 60 million to Rs 36 million, and quarterly payable threshold from Rs 15 million to Rs 9 million will have a sizeable impact on compliancy of Sri Lanka’s small and medium enterprises, EY Partner and Head of Tax Sulaiman Nishtar said on a recent livestream hosted by the Institute of Certified Management Accountants (CMA) of Sri Lanka.

Speaking of Sri Lanka’s bill to amend the VAT Act 2026, which is currently only published in the Gazette, Nishtar said: "If you look at it, it's a fairly steep drop and is most likely to affect especially the SME sector. Compliance requirements obviously will increase. That is not an easy tax to comply with. It has an output and input schedule record keeping regulations. Rules in terms of what can be claimed, what can't be claimed.” 

He added that the complexity of the paperwork would further burden SMEs that may not be compliant in terms of adequate record-keeping and documentation at this stage.

“So complexity will certainly come into those who are not compliant at the moment. This threshold now matches the SSCL law.”

On the positive end of outcomes that can be anticipated with the implementation of this change, Nishtar noted that organisations that have not been able to VAT on inputs in the past will now be able to do so.

On the positive side of it for SMEs, is that if anyone couldn't claim VAT input, which was a significant cost – now they can start claiming it. So it doesn't get um out of the value addition system. You pay only on the value addition. Input is now claimable,” he said.