Sri Lanka’s Inland Revenue Department has set July 1, 2026, as the new target date for imposing 18% VAT on foreign digital services — the third postponement of a measure first proposed in 2024.
The delay was announced through IRD Web Notice No. PN/VAT/2025-03, citing “requests from stakeholders in the digital services sector” who asked for additional time to prepare for compliance.
Pattern of delays
The digital services VAT has now missed three implementation dates:
- October 2025 — original target, delayed to April 2026
- April 1, 2026 — IRD confirmed on March 31 it would not proceed
- July 1, 2026 — new target, still subject to formal amendment of the VAT Act
The tax would require non-resident digital service providers — including Netflix, Spotify, Google, and SaaS platforms — to register with the IRD and remit 18% VAT on sales to Sri Lankan consumers. The measure was designed to close a gap where local digital businesses already pay VAT while foreign competitors do not.
Legislative hurdle remains
The IRD notice acknowledged that implementation remains “subject to formal amendment of the VAT Act,” meaning parliamentary action is still required before the July date becomes legally binding. With Parliament currently occupied by the energy crisis, the no-confidence motion against the Energy Minister, and IMF review outcomes, legislative bandwidth is constrained.
The repeated delays leave a gap in the tax base that the IMF programme had flagged for closure, while local digital businesses continue to operate at a competitive disadvantage.
