Deputy Minister of Economic Development Nishantha Jayaweera has denied that the gazette notification revising Value Added Tax from July 1 amounts to a rate hike, saying the change is a consolidation of two existing taxes rather than a new charge.
In a statement issued on Tuesday, Jayaweera said banks and financial institutions, which were previously subject to 18 percent VAT and a separate 2.5 percent Social Security Contribution Levy, will instead pay a single 20.5 percent VAT from July 1. The Social Security tax will no longer be charged separately, he said, framing the move as a simplification in line with government tax policy that “merges VAT and SSCL into a single tax.”
He said claims circulating on social media that VAT had been raised to 20.5 percent were misleading because the change reflected a restructuring of how the financial services tax was levied, not an additional burden. Jayaweera also said the revision would reduce administrative requirements, since financial institutions would no longer need to file separately for the two taxes.
The denial is the first formal government rebuttal to mounting opposition criticism of the VAT Amendment Bill released on April 29, which also lowers the registration threshold from Rs. 60 million to Rs. 36 million, brings non-resident digital service providers into the VAT net, and makes Inland Revenue-approved point-of-sale systems mandatory for real-time reporting.
Opposition Leader Sajith Premadasa, who described the package as “extraction not reform” on Monday, sharpened his criticism on Tuesday, calling it “extortion” and warning in an X post that small and medium enterprises would be drawn into the tax net, financial services taxed higher and the digital economy captured all at once. “You cannot tax an economy into growth,” he wrote. “If businesses can’t breathe, they won’t survive or thrive. And if they don’t survive, what exactly will be left to tax?”
The government has said the package is needed to meet 2026 fiscal targets agreed under the IMF programme. The Bill becomes legally enforceable only after Parliament completes the constitutional process.
