Sri Lanka's value added tax (VAT) will undergo a significant change in the new year, as the rate is set to increase from 15% to 18% effective January 1st, 2024.

Previously exempt items, such as certain goods and services, will now be subject to the 18% VAT, while many other goods will see an increase in VAT from 15% to 18%. 

Previously exempt items like diesel, petrol, and liquefied petroleum gas (LPG) will now be subject to VAT. 

However, the existing 7.5% Ports and Airport Development Levy on these products will be scrapped. 

Consequently, the overall tax burden on diesel and petrol will be 10.5%.

However, liquefied petroleum gas or cooking gas will see a net increase as the 18% VAT replaces the current 2.5% port and airport development levy, pushing the overall tax burden to 15.5%.

A list of VAT-exempt goods has been made public, and this includes electricity, wheat and wheat flour, baby formula, medicines and pharmaceutical ingredients, crude oil, kerosene, aviation fuel, agricultural seeds and plants, animal feed, textile yarn, and public passenger transport services. 

Locally produced handloom textiles, rice, rice flour, unprocessed agricultural and fish products remain outside the VAT purview as well.