Sri Lanka’s 2026 tax reforms, outlined in the November 2025 budget, focus on broadening the tax base, improving compliance through digitalization, and simplifying import duties while supporting SMEs and investors.

Key VAT Changes

The VAT and Social Security Contribution Levy (SSCL) registration threshold drops from Rs. 60 million to Rs. 36 million annual turnover starting April 1, 2026, pulling more SMEs into the system. orbitax+1
CESS on imported fabric is removed, replaced by VAT for fair competition with local producers; Special Commodity Levy on coconut/palm oil shifts to VAT + SSCL.kpmg+2
SSCL applies at vehicle import/manufacture/sale from April 2026.orbitax+1

Customs Reforms

Customs duties standardize to 0%, 10%, 20%, and 30% under the National Tariff Policy, effective April 2026, with gradual para-tariff phase-out to boost trade competitiveness.

Compliance Upgrades

A national API-based e-invoicing system links ERP/POS to RAMIS for real-time tracking, starting phased rollout in 2026.
Risk-based tax audits begin January 2026 for returns filed after, using transparent data to cut discretion.orbitax+1
RAMIS upgrades to version 3.5 enhance digital services.

Incentives Overview

SME tax incentive thresholds fall from USD 3 million to USD 250,000; five-year exemptions for AI data centers/digital towers.kpmg+1
SVAT was abolished in late 2025, shifting to refunds.