‘VAT increased to 20.5%’ claim false

Deputy Minister of Economic Development Nishantha Jayaweera emphasizes that the claims circulating on social media that the Value Added Tax (VAT) has been increased to 20.5 percent based on a recently issued gazette notification by the government, are completely false and baseless.

Speaking at a special media briefing held at the Ministry of Finance in Colombo Fort yesterday (04), he said that this amendment will not increase the general VAT rate, but will only simplify the tax system imposed on financial services. As the Deputy Minister pointed out, two types of taxes were previously levied on financial services provided by banks and financial institutions, namely an 18 percent VAT and a 2.5 percent Social Security Contribution Levy (SSCL). The total of these two taxes is 20.5 percent. The new amendment removes the 2.5 percent social security tax imposed on financial services and adds that amount to the VAT. Accordingly, although the VAT on financial services will be recorded as 20.5 percent from July 2026, there will be no change in the overall tax burden imposed on financial institutions, he explained. The Deputy Minister assured that there has been no change in the current 18 percent VAT rate for general goods and services, and that the government has not taken steps to impose an additional tax burden on consumer goods.

Deputy Minister Jayaweera stated that the main reason for making this change is to make tax administration more efficient and simpler. Previously, banks and financial institutions had to submit multiple reports separately for two types of taxes, but under the new system, they only have to submit one tax report. He stated that this was also a request from the banking sector and that it would provide great convenience to both taxpayers and the tax administration.

The government has planned to use modern technology to maintain the tax system with greater transparency. Under this, the Deputy Minister pointed out that a ‘Point of Sale’ (POS) machine system will be introduced for VAT taxpayers, and since the transaction data is directly received by the Inland Revenue Department, the preparation of tax returns will be simplified and tax refunds will be provided promptly.

He further stated that the government’s ultimate objective is to further reduce the current 18 percent VAT rate in the future and provide relief to the people by broadening the tax base and increasing revenue.

Source : Daily News