Best to Suspend 18% VAT on Digital Services — Economist Dalal Rabi

14-Jul-2025

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Prominent economist Dalal Rabi has urged the Sri Lankan government to suspend the 18% value-added tax on digital services. 

He warned that if US President Donald Trump becomes aware of this, an additional 18% tariff may be imposed on top of the current 30% reciprocal tax, resulting in severe economic losses.

He pointed out that attempting to gain just $32 million in tax revenue while risking $3 billion in exports is not a sound strategy.

While Vietnam secured a 20% reciprocal tariff by agreeing to remove US import duties, Sri Lanka retained all import taxes and consequently received a 30% rate. He added that a mere 25% decline in Sri Lankan exports to the US could cause a $750 million loss, far exceeding any gains from the digital tax.

The 18% VAT would contribute only 0.04% to the national GDP and would adversely impact major US companies like Google, Facebook, and Amazon — close allies of President Trump. Trump has made it clear that countries imposing such taxes on US companies would face equal retaliatory tariffs.

Therefore, introducing a digital tax now may provoke further sanctions and jeopardize $3 billion worth of exports to the US. He also advised against premature discussions on joining the BRICS bloc, as it may trigger an additional 10% tax from the US.