VAT reform in a time of crisis

Assessing MSME readiness amidst Ditwah cyclone aftermath and the 2026 compliance mandate

- By A.G.S. Swaminathan Sharma

SRI Lanka’s VAT system is undergoing one of its most significant reforms in recent years with the introduction of the new standardised VAT Tax Invoice format, effective 1 January 2026. Issued through Gazette Extraordinary No. 2463/05, this reform aims to eliminate long-standing inconsistencies, strengthen compliance, and support the country’s broader digital taxation roadmap. For businesses, accountants, auditors, and policymakers, understanding these changes is not only essential for compliance but also critical for building stronger internal controls and seamless reporting systems.

Why a New VAT Tax Invoice format was needed

For years, Sri Lankan businesses used vastly different invoice formats, leading to several systemic issues:

Difficulty in monitoring VAT compliance

Weak audit trails

Increased risk of inaccurate or fraudulent input tax claims

Lack of uniformity in accounting records

These gaps limited the Inland Revenue Department’s capacity to ensure accurate tax administration. The new standardised format directly addresses these shortcomings by enforcing consistency across all VATregistered businesses, ensuring better traceability, transparency, and audit readiness.

One of the simplest yet most important requirements is the mandatory use of the title “TAX INVOICE”.

This ensures:

™Clear identification of the document as an official VAT invoice

Avoidance of disputes during tax audits

@Legitimacy of input tax claims for the purchaser

This small requirement greatly enhances the compliance integrity of the VAT system.

The new specification requires the following details to be displayed prominently:

Supplier Information (left side):

|TIN

=Name

mAddress

Telephone number

Purchaser Information (right side):

@TIN

=Name

mAddress

Telephone number