VAT–SSCL Threshold Cut Sparks Consumer and SME Alarm

Sri Lanka’s 2026 Budget decision to reduce the VAT and Social Security Contribution Levy (SSCL) threshold from LKR 60 million to LKR 36 million is raising alarm among SMEs and consumers. Under the new rules, businesses crossing the threshold must charge 18 percent VAT and 2.5 percent SSCL, bringing the effective tax burden to 20.5 percent.

Traders warn that many small businesses lack digital accounting systems required for compliance, and delays in registration or refunds could create operational chaos. Consumers are expected to face immediate price increases in retail, groceries, food services, and other turnover-heavy sectors.

Economist Dr. Tehani Dias says the reform could promote formalisation in the long term, but without proper support and guidance, it risks constraining business growth and inflating costs for households. The Finance Ministry insists the threshold cut is vital to widen the tax base and strengthen fiscal sustainability, emphasizing the need for timely implementation and SME assistance.

 

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