Business Groups Call on Sri Lanka to Exempt Traders from VAT and End Double Taxation Burden

Sri Lanka's business community is pressing the government to remove traders from the value-added tax (VAT) framework and eliminate the practice of double taxation, arguing that the current system places an unsustainable financial burden on commercial activity and stifles economic growth.

Calls for a Fairer Tax Structure

Advocates representing the trading sector have urged authorities to reconsider how VAT is applied across the supply chain, warning that including traders — particularly small and medium-scale operators — within the VAT net creates layers of taxation that are both administratively complex and economically damaging.

The push comes amid broader concerns about Sri Lanka's tax policy environment, which critics say needs urgent reform to support business recovery following the country's prolonged economic crisis.

The Double Taxation Problem

A key grievance raised by the business community centres on double taxation, a situation where the same income or transaction is taxed more than once through overlapping levies. Those advocating for reform argue that this discourages investment, reduces competitiveness, and pushes businesses toward the informal economy.

• Traders face VAT obligations on top of existing tax liabilities, compressing margins
• Small and medium enterprises are disproportionately affected by the compliance burden
• Double taxation undermines the incentive to remain within the formal business sector

Impact on Trade and the Broader Economy

Experts note that simplifying the VAT structure and removing traders from its scope could stimulate domestic commerce, ease the cost of doing business, and ultimately broaden the tax base by encouraging more enterprises to operate transparently within the formal economy.

Removing traders from the VAT net and addressing double taxation are essential steps toward creating a tax system that supports growth rather than penalising legitimate business activity.

The government has yet to issue a formal response to these specific proposals, though discussions around tax reform continue to feature prominently in Sri Lanka's ongoing economic recovery dialogue with both domestic stakeholders and international partners.

With Sri Lanka still navigating a fragile economic rebound, the outcome of these tax policy debates is expected to have significant implications for the country's business climate in the months ahead.