VAT has been one of the most talked-about topics for Sri Lankan small businesses in 2026. A planned cut to the registration threshold made headlines, was then dropped, and a new rule on secured POS machines was added to the law. If you run a growing shop or service business, here is what you need to know, written in plain language.
Important: this article is general information as at 1 October 2026, not tax advice for your business. Tax rules change. Always confirm with the Inland Revenue Department (IRD) or your own accountant before making decisions.
The standard VAT rate is 18%. Some supplies are exempt or zero-rated, and financial services have their own rate, but most goods and services sold by small retailers and service businesses fall under the standard rate.
According to the IRD's public notice dated 3 July 2026, you must register for VAT if the value of your taxable supplies exceeds:
"Taxable supplies" broadly means your sales of goods and services that are subject to VAT. Exempt supplies are not counted towards the threshold.
Earlier in 2026, a reduction of the threshold from Rs. 60 million to Rs. 36 million was proposed, and many articles reported it as coming into effect from April 2026. In July 2026 the government withdrew that proposal, citing the challenges still faced by small and medium-sized businesses. The threshold remains Rs. 60 million a year (Rs. 15 million a quarter).
If you read an older article saying Rs. 36 million, it is out of date. Thresholds can be revisited in future budgets, so it is worth keeping an eye on IRD announcements.
Yes. Businesses below the threshold can choose to register voluntarily. This can make sense if most of your customers are VAT-registered businesses, or if you pay a lot of VAT on your own purchases and want to claim it back as input tax. It also means more record-keeping and regular VAT returns. Discuss it with your accountant first.
The 2026 amendments to the VAT Act introduced a requirement for VAT-registered businesses to use secured point of sale machines approved by the Commissioner-General of Inland Revenue. Once the date is formally prescribed, registered businesses will have three months to comply.
What this means in practice:
At VeeraOne we will publish an update once the IRD releases the technical requirements, so you know exactly where we stand.
Many small businesses only discover they have crossed the threshold when their accountant prepares the annual accounts, which can mean late registration and penalties. Avoid that with a simple habit:
| Check | Threshold | Early-warning level (suggested) |
|---|---|---|
| Sales in the current quarter | Rs. 15,000,000 | Rs. 12,000,000 |
| Sales in the last 12 months | Rs. 60,000,000 | Rs. 48,000,000 |
The early-warning levels are our suggestion (80% of the threshold), not a legal requirement. They simply give you time to prepare.
Good records make VAT registration, if it comes, far less stressful, and they help you run the business better. Our guide to calculating daily profit shows how to use the same records to see what you actually earn.
Rs. 60 million in any 12-month period, or Rs. 15 million in any quarter. The proposed cut to Rs. 36 million was withdrawn in July 2026.
The standard rate is 18%.
Only if you are VAT-registered, and only once the IRD prescribes the start date. You will then have three months to comply.
Source: Inland Revenue Department, Public Notice SEC/PN/VAT/2026-03 (3 July 2026).
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