Further 3% rise in standard rate following 2022 increase to 15%
Sri Lanka’s cabinet has approved a 3% VAT rise from 15% to 18%. This will come into effect from 1 January 2024.
This increase is to help ensure government reaches revenue targets and secures next round International Monetary Fund loans. Whilst tax receipts have risen sharply this year, this has not been sufficient to meet the IMF-set targets. A range of exemptions are to be withdrawn, too.
This latest rise follows two emergency increases in 2022 (see below).
31 Aug 2022: Sri Lanka is racing Value Added Tax rate for this second time this year.
From 1 September 2022, it will rise from 12% to 15%. On 1 June is rose from 8% to 12%. These two increases reverse the 2019 cut from 15% to 8%.
]A range of other tax measures, including a rise in corporate income tax in October, are to follow as the government struggles to make debt payments.
At the same time, the zero-rating of accommodation, restaurant and related services is withdrawn. These supplies return to the standard rate. The telecoms levy has already been increased from 11.25% to 15%.
The VAT registration threshold will rise on 1 October 2022 to LKR 120million (approx €315,000) per annum.
2019 cut to 8% reversed as country faces worst economic crisis
The drop in revenues during the COVID-19 crisis forced the government to reverse the reduction in VAT in 2019 from 15% to 8% the finance minister has said. This comes despite large scale protests over austerity measures. The country is still not able to service is current debt, and temporally defaulted in April due to the economic effects of the COVID-19 pandemic and Ukraine war.
Sri Lanka approved the raising of the Value Added Tax rate from 15% to 18% for 2022 only on banking and other nominated financial services institutions. Previously, the rate had been 11% until November 2016.
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A limited Goods and Services Tax (GST) was introduced from 1 January 2022 for the following supplies which already have industry-specific levies and taxes:
- Motor vehicles
- Telecoms services
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