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Sri Lanka hikes VAT from 8% to 12%

Debt and inflation woes push reversal of 2019 VAT cuts

The Sri Lankan government on 31 May announced with immediate effect a rise in the standard VAT rate from 8% to 12%.  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. Inflation hit 39% in May 2022, up from 30% in April.

The rise will come into effect on 1 June 2022. At the same time, the zero-rating of accommodation, restaurant and related services is withdrawn.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 will rise 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% may have to be 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 has already approved the raising of the Value Added Tax rate from 15% to 18% for 2022 only on banking and other nominated financial services institutions.  The standard rate for other supplies is 8% following a drop from 15% in 2019. Previously, the rate had been 11% until November 2016.

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A limited Goods and Services Tax (GST) will also be introduced from 1 January 2022 for the following supplies which already have industry-specific levies and taxes:

  • Gambling
  • Cigarettes
  • Alcohol
  • Motor vehicles
  • Telecoms services

VAT Calc’s in real-time global Calculator and Auditor  services produce instant and accurate tax calculations for Sri Lanka or any jurisdiction into your ERP, billing, e-commerce or e-invoicing systems.

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