Supreme Court of the Democratic Socialist Republic of Sri Lanka

¶ 01 S.C. (SD) No. 05/2025 & S.C. (SD) No. 06/2025

¶ 02 “Value Added Tax (Amendment)” Bill

¶ 03 Before: - Hon. S. Thurairaja, PC, J — Judge of the Supreme Court - Hon. Kumudini Wickremasinghe, J — Judge of the Supreme Court - Hon. A.L. Shiran Gooneratne, J — Judge of the Supreme Court

¶ 04 S.C. (SD) No. 05/2025 - Petitioner: Dikkanda Plantation Ltd., Dikkanda Estate, Yakkala Road, Wathurugama. - Counsel: Shaheeda Barrie with Hiruni de Almeida, Ridmi Beneragama instructed by Sanjeewa Kaluarachchi

¶ 05 S.C. (SD) No. 06/2025 - Petitioner: Mary Kaushalya Gunaratne, 226, Kadawatha Road, Ragama. - Counsel: Avindra Rodrigo, PC with Ashiq Hassim, Christina Hettiarachchi and Amaan Bandara instructed by F. J. & G. de Saram

¶ 06 Respondent in all cases: - Hon. Attorney General, Attorney General’s Department, Colombo 12. - Counsel for the State: Nirmalan Wigneswaran, DSG with Abigail Sooriyakumar Jayakody, SC instructed by Riznie Firdous, SSA

¶ 07 Determination of the Court

¶ 08 A Bill titled “Value Added Tax (Amendment)” (hereinafter the ‘Bill’) was published in the Government Gazette dated 21st February 2025. It was thereafter placed on the Order Paper of Parliament on 01st March 2025.

¶ 09 Two Petitioners in S.C. (SD) 05/2025 and S.C. (SD) 06/2025 invoked the jurisdiction of this Court in terms of Article 121 of the Constitution by separate Petitions on 10th March 2025 and 14th March 2025, respectively. On 17th March 2025, when the Petitions were taken up, Counsel for the Petitioner in S.C. (SD) 05/2025 made submission indicating their intention to withdraw the Petition before it was taken up for hearing. Accordingly, S.C. (SD) 05/2025 was dismissed and we make no determination.

¶ 10 The Petitioner in S.C. (SD) 06/2025, who invoked jurisdiction of this Court on behalf of herself, others similarly circumstanced as well as the citizens of Sri Lanka, is the Regional Lead of Uber Lanka (Pvt) Limited. Uber Lanka (Pvt) Limited, which was incorporated in 2014, is engaged in the business of providing market research, product and services marketing including promotional and support activities to Uber BV in Netherlands. The Petition stated that Uber Lanka (Pvt) Limited pays applicable Value Added Tax (VAT) with respect to such business.

¶ 11 According to the Petitioner, Uber BV facilitates on-demand transportation services through a smartphone application, i.e., the Uber App, in selected cities in Sri Lanka since December 2015, and Uber Portier BV provides the Uber Eats App service in Sri Lanka since September 2018, which connects merchants with customers. In providing these services Uber BV and Uber Portier BV act as the intermediary between partners who provide services and customers of those services, which connects such partners and customers. The provision of services happens directly between the partners and customers so connected.

¶ 12 The Petitioner highlighted with reference to Clause 2 of the Bill that it intended to amend the Value Added Tax Act, No. 14 of 2025 so as “...to impose a tax liability on the supply of services by a non-resident person by an electronic platform” in Sri Lanka.

¶ 13 Furthermore, with reference to Clause 2(a), the Petitioner argued that there is a glaring ambiguity as to what would constitute ‘supply of services through an electronic platform’. It was further argued that, when it comes to Operators such as Uber, it was unclear as to whether tax would be calculated to all of the funds that flow through an electronic platform, most of which are passed on to local service providers, who pay VAT on such amount so passed on. This, she argued, could result in discriminatory tax burdens between local service providers and non-resident service providers, or even between local offline service providers as against local service providers who use a digital platform.

¶ 14 With respect to the abolition of simplified VAT scheme envisaged in Clause 2(b) of the Bill, Petitioner argued that it could disproportionately impact small and medium enterprises (SMEs) compared to larger corporations.

¶ 15 The Petitioner also argued Clause 4 of the Bill, which envisages mandatory VAT registration for all importers and exporters irrespective of tax exceptions granted, to be a provision that unreasonably restricts and discourages businesses, especially SMEs. She also contended that Clauses 3 and 8 of the Bill have retrospective operation.

¶ 16 In addition to this, the Petition in S.C. (SD) 06/2025 also challenges constitutionality of Clause 11 for granting unbridled power to tax authorities and Clause 10 for allowing tax assessors to determine tax liabilities without adequate procedural safeguards.

¶ 17 On such grounds, the Petition contended certain provisions of the Bill to be inconsistent with Articles 3, 4, 12, 13(3) and 14(1)(g) of the Constitution.

¶ 18 As the Petition in S.C. (SD) 06/2025 was filed during the closing hours of the constitutionally mandated time limit, the application was only brought before the judges on the morning of 17th March. The same was served on the learned Deputy Solicitor General when the matter was called before the Court the same morning.

¶ 19 Counsel appearing for the Petitioner, Mr. Avindra Rodrigo, PC informed the Court at this point that he wishes to make representations to the learned Deputy Solicitor General for the State to get instructions from the relevant ministries and authorities in order to address the concerns raised by the Petitioner with regard to the constitutionality of the Bill.

¶ 20 Accordingly, the matter was listed for determination on the 18th of March. When the Court assembled on the 18th, the learned Deputy Solicitor General presented a letter dated 17th March 2025 by the Secretary to the Treasury providing clarifications to certain concerns raised by the Petitioner as well as the Amendments proposed to be moved at the Committee Stage of the Bill. Both Counsel undertook to file a joint motion setting out terms of settlements and the documents aforementioned.

¶ 21 The said letter dated 17th March 2025 provided the following clarifications: (a) The value of supply of goods or services for VAT purpose is determined in accordance with the provisions of Section 5 of the VAT Act. It will depend on the nature of the services supplied and will have to be decided on a case-by-case basis. (b) The date of effectiveness of the VAT Amendment Act will be phased out to October 01, 2025 from April 01, 2025 to enable better compliance by suppliers providing services through an electronic platform. (c) Relevant regulations relating to the payment of VAT on supplies made through electronic platforms by non-resident persons could be promulgated only after the enactment of the Amendment Act. Accordingly, actions will be taken to promulgate the regulations after the enactment of the law but at least 03 months prior to the date of effectiveness of the tax.

¶ 22 Whereas the amendments proposed to be moved at the Committee Stage of the Bill are as follows:

¶ 23 Page 2, Clause 2 (1) Delete line 1 and substitute the following: “Sri Lanka, with effect from October 1,” (2) Delete line 20 and substitute the following: “October 1, 2025,” and” (3) Delete line 25 and substitute the following: “machinery imported prior to October 1,”

¶ 24 Page 13, Clause 13 (1) Delete line 20 and substitute the following: “2011 but prior to October 1, 2025”;” (2) Delete lines 22 and 23 and substitute the following: “(3) for any period commencing on or after October 1, 2025— (a) a period of one month— (i) where any person is considered as an eligible exporter under this Act; (ii) where any person has commenced any business or any project in Sri Lanka and undertakes to comply with the requirements specified in subsection (7) of section 22; (iii) where any person supplies goods or services to any Strategic Development Project under item (xx) of paragraph (b) of Part III of the First Schedule to this Act during the project implementation period or any specified project identified by the Minister under item (xx) of paragraph (b) of Part III of the First Schedule to this Act;”

¶ 25 Page 14: (3) Delete lines 09 to 13 (both inclusive) and substitute the following: “products derived from plants cultivated on land or in a greenhouse, and include products that have undergone preliminary processing steps such as cleaning, sizing, sorting, grading, cutting or chilling for the purpose of sale;”.

¶ 26 Moreover, it was further confirmed by the learned Deputy Solicitor General that persons similarly placed will be treated similarly, irrespective of whether they are resident or non-resident, in the application of Section 5 of the Value Added Tax Act, as proposed to be amended by the Bill.

¶ 27 In view of these clarifications and amendments proposed to be moved at the Committee Stage of the Bill, it was submitted by the Petitioner that she would not be proceeding further in this matter.

¶ 28 The joint motion dated 18th March 2025 placed before this Court by the Petitioner in S.C. (SD) 06/2025 and the Respondent, along with all its annexures, is appended hereto.

¶ 29 As both Petitioners in S.C. (SD) 05/2025 and S.C. (SD) 06/2025 opted not to proceed with their Petitions, we make no determination as to the constitutionality of the Bill in question.

¶ 30 The aforementioned details are submitted to Parliament, the Speaker of Parliament and His Excellency the President for their information and necessary action.

¶ 31 We wish to further place on record our deep appreciation of the exemplary expediency and expeditiousness demonstrated by the learned President’s Counsel for the Petitioner and the learned Deputy Solicitor General throughout this matter.

¶ 32 S. Thurairaja, PC, J Judge of the Supreme Court

¶ 33 Kumudini Wickremasinghe, J Judge of the Supreme Court

¶ 34 A.L. Shiran Gooneratne, J Judge of the Supreme Court