⚖️ Sri Lanka Enforces Tougher Tax Compliance and Criminal Penalties Under New Legislation

• Criminal Prosecution Framework: Enactment of Inland Revenue Amendment Act No. 11 of 2026 and VAT Amendment Act No. 14 of 2026 allows prosecution for failing to obtain a TIN, file income tax returns, or attend IRD statutory hearings. Non-compliance can lead to fines up to Rs. 400,000 and 6 months imprisonment. • Expedited Tax Default Recovery: Unpaid taxes can now be directly recovered through Magistrate’s Court proceedings as Court-imposed fines once the assessment is finalized. • 12-Year VAT Limitation Period: Criminal prosecution for VAT offenses can now be initiated up to 12 years from the date of default, significantly extending liability exposure during audits or disputes. • Forty-Fold Penalty Increase: Penalties for tax offenses committed on or after 1 October 2025 have jumped forty-fold—from Rs. 25,000 to a fine of up to Rs. 1,000,000, along with potential imprisonment. • Invoicing, Customs & Refund Fraud: Failure to issue valid tax invoices or customs declarations, as well as submitting false VAT refund claims, are now explicit criminal offenses subject to fines up to Rs. 1,000,000. • Digital Services Rules: Registered non-resident digital service providers face administrative penalties of up to Rs. 50,000 for failing to submit required supply statements.