1. Introduction The Value Added Tax (Amendment) Bill, 2025, seeks to revise the Value Added Tax Act, No. 14 of 2002, by introducing new provisions for taxation, modifying tax structures, and eliminating existing schemes. This report provides an analysis of the key changes and their implications.

2. Key Amendments

2.1 Taxation on Non-Resident Electronic Service Providers

• The amendment imposes a tax liability on services supplied by non-resident persons through electronic platforms to individuals in Sri Lanka, effective from April 1, 2025.
• This move aligns with global trends in digital taxation and aims to capture revenue from cross-border digital transactions.

2.2 Abolition of the Simplified Value Added Tax (SVAT) Scheme

• The SVAT scheme is being replaced with a VAT refund system, requiring eligible taxpayers to apply for refunds instead of benefiting from upfront exemptions.
• The refund process is structured under a Risk-Based Refund Scheme, ensuring compliance and efficiency.

2.3 Zero-Rated Supplies Expansion

• The following are now classified as zero-rated supplies:
  • Meals and transport provided by employers to employees at subsidized rates.
  • Reinsurance commissions and foreign currency compensations received by local insurance companies.
  • Unused government-issued postage and revenue stamps.

2.4 Mandatory VAT Registration for Importers and Exporters

• Any person engaging in commercial import or export of goods is required to register under the VAT Act, irrespective of tax exemptions or turnover thresholds.
• This ensures broader tax compliance and prevents tax evasion through underreporting.

2.5 Electronic Filing of Returns

• VAT returns must be submitted electronically from July 1, 2025, with provisions for special cases where manual filing may be permitted.
• This enhances efficiency and reduces administrative burdens.

2.6 Revised Tax Invoice Format

• A standardized format for tax invoices will be specified by the Commissioner-General.
• Ensures uniformity and prevents fraudulent invoicing.

2.7 Strengthened Enforcement and Compliance Measures

• Introduction of new Section 48B for recovery of undeclared and unpaid taxes.
• Empowering tax assessors to determine tax liabilities for non-compliant non-resident entities.
• Streamlined audit procedures and enhanced data monitoring.

2.8 Definition Modifications and Schedule Amendments

• New definitions for “eligible exporter” and “unprocessed agricultural products.”
• Adjustments in taxable periods: Transition from bi-monthly to monthly or quarterly filing options for VAT returns.
• Tax relief on specific essential goods such as liquid milk and yogurt made from local fresh milk.

3. Expected Impact

3.1 Economic and Business Environment

• Encourages fair competition by taxing foreign digital service providers.
• May increase compliance costs for businesses due to mandatory VAT registration and electronic filing.
• Potential improvement in government tax revenue through enhanced enforcement.

3.2 Consumer and Public Impact

• Price changes may occur due to VAT adjustments on imported and digital services.
• Refund system could initially cause delays in cash flow for eligible businesses.
• Strengthened transparency and simplified processes may benefit long-term economic stability.

4. Conclusion The VAT (Amendment) Bill, 2025 introduces significant changes to the Sri Lankan tax system, targeting digital economy taxation, broadening compliance requirements, and improving VAT administration. While businesses will face transitional challenges, the amendments are expected to strengthen the tax framework and increase government revenue in the long run.

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