VAT revision not a tax increase, govt. clarifies tax change

By Darshana Sanjeewa Balasuriya

Colombo, May 05 (Daily Mirror) - Deputy Minister of Economic Development Nishantha Jayaweera yesterday rejected claims of a looming VAT hike, stating that tax changes due to take effect on July 1, 2026, are intended to streamline the system without increasing the overall tax burden.

Addressing claims circulating on social media, the Deputy Minister said the revision is aimed at simplifying the tax system in line with government policy. The change involves merging the existing VAT and the Social Security Contribution Levy (SSCL) into a single consolidated tax applicable to banks and financial institutions.

"Under the current system, these institutions are subject to an 18% VAT and a separate 2.5% Social Security Tax. From July 1, the Social Security Tax will be removed for these entities, and the equivalent 2.5% will be integrated into the VAT, resulting in a single consolidated VAT rate of 20.5%," the Deputy Minister said.

Jayaweera said that the overall tax burden on the financial sector will remain unchanged, explaining that the consolidation is aimed at easing compliance by removing the need for separate filings.

He said that the sector had long called for such a move to reduce administrative complexity.

The Deputy Minister urged the public not to be misled by claims of a tax hike, reiterating that the adjustment is purely a simplification of the existing framework.