Regulatory updates - Sri Lanka

On 1 June 2022, the Inland Revenue Department of Sri Lanka issued a Notice to VAT Registered Persons regarding changes in the VAT rates as per the Extraordinary Gazette Notification No. 2282/26, published in the Official Gazette on 31 May 2022.

The notice was issued as a part of the tax reform aimed at increasing government revenue. The VAT rate has been revised as set out below:

• 0% on the import of goods (fabrics) set out in the H.S. Code and description specified in Columns I and II of Schedule of the Extraordinary Gazette Notification No. 2095/20 dated 1 November 2018;
• 12% on the import and/or supply of goods or services, other than the import of goods above (previously 8%);
• 12% also fall on the supply of services by a hotel, guest house, restaurant, or other similar businesses providing such services, registered with the Sri Lanka Tourism Development Authority (previously 0%).

Furthermore, the Notice states that the VAT rate of 18% on the supply of financial services from 1 January 2022 still applies.

Another increase that took effect on 1 June applies to the telecommunications levy (15% from 11,25%), which is to be implemented by the Telecommunications Regulatory Commission.

Additional tax reforms to be implemented down to the road, including a raise of the standard corporate income tax rate to 30% together with an increase in the concessionary rate to 15%. Moreover, there is a reduction to LKR 120 million (ca. EUR 300 000) in the VAT registration threshold, the removal of certain tax holidays, and several other measures. These changes are planned to be implemented from 1 October 2022 and 1 April 2023.