Sri Lanka Delays VAT on Digital Services to July 2026

In February 2025, the Sri Lankan Ministry of Finance publicly presented the 2025 Budget Speech, which, among other matters, included the announcement on the introduction of VAT on non-resident digital services providers. Originally scheduled to take effect in October 2025, the VAT on cross-border digital services has been postponed for the second time.

New Implementation Date of VAT on Digital Services

Last September, the Sri Lankan government announced that it would postpone the introduction of VAT on foreign digital service providers from October 2025 to April 1, 2026. The main reasons for this postponement were requests from non-resident service providers and the outcome of discussions with the IMF, during which both sides expressed concerns about specific practical compliance issues. 

On March 31, 2026, the Inland Revenue Department published a notice informing taxable persons that the implementation of VAT on the supply of services through electronic platforms by non-resident service providers has been further postponed to July 1, 2026. In a brief announcement, the Inland Revenue Department stated that the revised timeline remains conditional on a formal amendment to the VAT Act being enacted.

From a practical standpoint, non-resident providers of digital or platform-based services, including streaming, SaaS, or online marketplaces, remain out of the scope of VAT and are not yet required to register for, collect, or remit Sri Lankan VAT on these services.

Conclusion

On the one hand, the decision to postpone the introduction of 18% VAT on foreign digital service providers maintains the Sri Lankan government's intention to impose VAT on the digital economy. At the same time, the fact that the implementation is once again postponed shows that without a clear legal framework and practical compliance mechanisms in place, the effective rollout of such measures remains challenging. Foreign digital service providers should continue to monitor for additional notices and guidance from the Inland Revenue Department.

Source: Inland Revenue Department, VATabout