📈 Concerns Rise Over Aggressive Tax Enforcement on Sri Lankan MSMEs

• Key Operational Pressures: MSMEs face heavy tax burdens, including 18.5% VAT, 2.5% SSCL, costs of mandatory digital payments, and thin profit margins, threatening business survival and local employment. • Legal & Procedural Shifts: Under new VAT Act amendments, the period to initiate criminal proceedings for tax non-compliance has extended from 5 to 12 years (retrospective up to 2014), creating severe documentation and defense challenges for small enterprises. • Enforcement Impact: Intensive Inland Revenue Department (IRD) enforcement has led to court actions, asset liquidations, and imprisonments—such as ~600 businessmen brought to court within a single month in Central Province to meet targets. • Calls for Reform: Industry advocates urge policymakers to distinguish between intentional tax fraud and genuine inability to pay due to bankruptcy, calling for structured repayment plans to protect jobs, long-term tax compliance, and national economic growth.