The procedures for registration, payment, and compliance in respect of the recently announced Value-Added Tax (VAT) on digital services supplied by non-resident persons through electronic platforms is yet to be finalised, according to Inland Revenue Department (IRD) Commissioner General Rukdevi P.H. Fernando.

Following the certification of the VAT (Amendment) Act No.4 of 2025, the Government had decided to commence taxation of digital services supplied by non-Sri Lankans from 1 October this year.

The IRD press release further specified that “procedures for registration, payment, and compliance will be specified by the Commissioner General in due course”.

However, the Commissioner General specified that taxing foreign digital services involved many complications and that the procedures required careful assessment.

“How the tax is collected and at which point in the transaction the tax will be applied are strong areas we will need to consider. These matters are under careful consideration in our discussions. We will be revealing more details tomorrow (21),” she said.

When questioned if digital platforms such as Google, Facebook, and Instagram among others would also be taxed, the Commissioner General said that the entities were also a part of the ongoing discussions to determine the procedures.

A senior official attached to the Department of Fiscal Policy, choosing to remain anonymous, elaborated further on the newly enacted tax on foreign digital services.

“The key challenge remains identifying how VAT will be collected on services provided by non-resident digital service providers like Google, Facebook, and others, especially when these companies do not have a physical presence or registered agent in Sri Lanka. 

“If a service is provided in Sri Lanka, whether directly or through an agent, it is liable for VAT. The issue arises when a non-resident provides services without any local presence. Until now, we didn’t have the legal provision to tax them, but now we do. Still, enforcement is tricky,” the official said.

“One option under consideration is a reverse charge mechanism, similar to India, where the consumer becomes liable to pay the VAT directly if the supplier is not registered locally. Another potential solution is to tax the transaction at the point of payment, such as through the payment gateway. 

“We are still in the process of consulting with digital service providers. Once formalities are finalised, we can announce the specific collection mechanism. We aim to finalise everything by end-June, allowing a three-month window before implementation,” the official added.