Sri Lanka: Budget 2026 tax proposals

Direct, indirect, and import tax measures to broaden the tax base and boost competitiveness

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november 10, 2025

The Minister of Finance on November 7, 2025, issued the 2026 budget detailing several tax proposals to broaden the tax base and enhance economic competitiveness:

Direct tax

  • Enhanced capital allowance: Reduce the qualifying investment threshold for SMEs from US$3 million to US$250,000

Indirect tax

  • Reduction of value added tax (VAT) and social security contribution levy (SSCL) registration thresholds: Lower thresholds from Rs. 60 million to Rs. 36 million annually, effective April 1, 2026
  • Imposition of VAT and SSCL on imported coconut oil and palm oil: Replace the special commodity levy with VAT and SSCL
  • Imposition of VAT on imported fabric: Replace CESS with VAT to align with locally manufactured fabric
  • Imposition of SSCL on sale of vehicles: Charge SSCL at the time of importation, manufacture, and sale of vehicles, effective April 2026.

Import taxes

  • National tariff policy: Revise customs import duty bands to 0%, 10%, 20%, and 30%, effective April 2026
  • Phase out para-tariffs: Phased removal of para-tariffs, but with no mention of timeframe


Read November 2025 reports prepared by the KPMG member firm in Sri Lanka:

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