By: Isuru Parakrama
April 17, Colombo (LNW): The Inland Revenue Department has confirmed significant changes to the country’s Value Added Tax (VAT) framework, following the recent enactment of an amendment to the legislation.
The changes include new exemptions for key sectors and the expansion of tax obligations targeting the digital economy and international trade.
According to a public communication issued by the department, locally produced liquid milk and yoghurt are no longer subject to VAT as of 11 April. This exemption came into effect immediately after the amendment received formal approval from the Speaker, following its passage in Parliament two days earlier.
The tax relief applies only to products where at least half of the content consists of fresh milk, ensuring that genuinely local dairy producers benefit from the policy.
In a parallel move aimed at easing operational costs in the energy sector, the government has also lifted VAT on naphtha supplied by the Ceylon Petroleum Corporation to the Ceylon Electricity Board for electricity generation.
This exemption is expected to support cost efficiencies at a time when the country continues to manage energy affordability and supply challenges.
Beyond the domestic adjustments, the amendment introduces new measures to bring Sri Lanka’s tax system in line with international norms regarding digital commerce. Starting from October 01, non-resident companies providing digital services to Sri Lankan consumers via online platforms will be required to pay VAT on their transactions.
This marks a significant step in capturing tax revenue from global tech firms and service providers operating in the local market without a physical presence.
The tax authority also outlined that all parties involved in the commercial import or export of goods must now register under the revised VAT system. This requirement applies to both individuals and organisations, reinforcing regulatory oversight in cross-border trade and expanding the country’s tax net.
Officials say these measures are designed to improve fiscal discipline, encourage fair competition, and support domestic production, whilst also positioning Sri Lanka to participate more effectively in the evolving global digital economy.
