Sri Lanka’s Inland Revenue Department confirmed on March 31 that the proposed 18% VAT on cross-border digital services will not take effect on April 1, 2026, as scheduled. No new implementation date has been announced, leaving businesses and consumers in continued uncertainty.
The tax would apply to non-resident digital service providers — including Netflix, Spotify, Google, PayPal, Stripe, and SaaS platforms — requiring them to register with the IRD and remit 18% VAT on sales to Sri Lankan consumers. The measure was designed to level the playing field with local digital businesses already subject to VAT since January 2024.
This is the second postponement. The digital services VAT was first proposed in 2024, delayed from October 2025 to April 2026 to “iron out practical difficulties,” according to Cabinet spokesman Nalinda Jayatissa. The IMF was consulted on the extension, and service providers had requested additional preparation time.
A key unresolved issue is the risk of double taxation on payment processors. Services like PayPal and Stripe function as financial intermediaries, and charging them VAT independently while the underlying transactions are also taxed could result in compounded rates approaching 36% for Sri Lankan consumers.
The repeated delays leave a gap in Sri Lanka’s tax base that the IMF programme had flagged for closure. Local digital businesses that already collect and remit VAT continue to operate at a competitive disadvantage against untaxed foreign providers.
