The Hon. Nishantha Jayaweera - Deputy Minister of Economic Development

¶ 01 Hon. Deputy Speaker, our medium‑term policy targets 7% growth to broaden the economy. Attracting FDI is critical. In 2025 we secured USD 1,057 million in FDI—the highest in four years. For 2026 we target USD 2 billion. Recent Port City amendments were aimed at incentivizing investors based on forex inflows and jobs, permitting duty‑paid imports within project timelines, increasing building height limits, and design adjustments—ultimately to draw more FDI.

¶ 02 On VAT reforms presented in the 2026 Budget: the enabling Gazette has been issued. Some are misrepresenting it, including claims we are raising VAT from 18% to 20.5%. I state clearly: the standard VAT rate remains 18%. Our strategy is to embed technology, improve administration, and broaden the base to raise revenue, with the aim of reducing rates over time. The current amendment does not change the public’s VAT rate.

¶ 03 On methodology: VAT applies to non‑financial services on turnover at 18%. For financial services provided by banks and financial institutions, VAT on financial services (VOFS) applies on an attributable profit base at 18%. Additionally, a 2.5% Social Security Contribution Levy (SSCL) currently applies on the same attributable profit.

¶ 04 We have already passed an SSCL amendment so that from 1 July, banks/financial institutions will not pay SSCL on financial services. Instead, VOFS will be adjusted so that VOFS equals 20.5% on the same attributable profit base. Net tax burden remains the same: 18% VOFS + 2.5% SSCL = 20.5% becomes a single 20.5% VOFS. There is no increase in the overall rate; it simplifies the system—one return rather than two—reducing compliance costs. Public VAT remains 18%.

¶ 05 We are also advancing e‑invoicing and POS integration to automate reporting to the Inland Revenue Department, speeding refunds and improving compliance. The POS pilot is operating successfully; we intend rapid rollout. Assertions that VAT rises to 20.5% are false; we are consolidating two levies into one at the same effective rate for financial services only.