Government plans VAT-linked e-invoicing system and controversial digital ID rollout, raising efficiency—and concerns over surveillance
Sri Lanka is preparing to roll out a new e-invoicing system for Value Added Tax (VAT), aiming to digitize tax collection and link business transactions directly to the Department of Inland Revenue, according to Deputy Minister of Economic Development Anil Jayantha Fernando.
Speaking in Parliament, the minister emphasized the importance of leveraging technology to modernize VAT collection and reduce revenue leakage. “We must bring the mechanism of VAT collection, calculation, and transmission into the digital age,” he said.
The pilot phase of this VAT e-invoicing initiative will focus on selected sectors and high-value individuals. The government, he noted, is working with international agencies for technical support and intends to extend the system to Point of Sale (POS) machines, allowing real-time transaction data to be sent directly to the tax office. Exporters will be the first group integrated, which officials claim will expedite VAT refund processing and improve efficiency.
Currently, exporters benefit from the Suspended VAT (SVAT) system, which exempts them from paying VAT on imports. However, delays in refund processing under any upfront payment model often lead to cash flow advantages for the government, at the expense of the private sector.
Beyond VAT monitoring, e-invoicing will allow authorities to track third-party revenues, income tax compliance, and possibly link disparate data sources across the economy.
Digital ID Rollout Raises Privacy Red Flags
In tandem with tax reforms, the government is also moving forward with the implementation of a Digital National ID, designed to integrate individual data across public platforms. While officials claim this will streamline services and tighten compliance, privacy advocates and political analysts are raising the alarm.
Critics argue that linking taxpayer PINs with a unified digital ID gives the state unprecedented surveillance power—especially dangerous in contexts where political neutrality and institutional checks are weak. In authoritarian states, such IDs are often used to suppress dissent, monitor behavior, and undermine democratic freedoms.
In Sri Lanka, only the Frontline Socialist Party has formally opposed the initiative, warning of the risks posed by what they claim is an Indian-backed digital ID scheme. The proposed system, they say, echoes earlier plans mooted by the Rajapaksa administration, which were legally challenged by civil society activists. The current status of court-mandated safeguards remains unclear.
Globally, the risks are well documented. The United Kingdom, for instance, scrapped its National ID program in 2010, citing the potential for abuse of power and erosion of civil liberties. Then Prime Minister David Cameron called it a move to “hand power back to the people.”
Sri Lanka’s approach contrasts starkly with that of countries like Vietnam, which recently implemented e-invoicing but faced backlash from SMEs, many of whom struggled with the technology and feared taxation on credit sales. Vietnam, however, is slashing its public sector by 20%, while maintaining low income tax rates and leaner governance—a stark contrast to Sri Lanka’s expanding state apparatus and growing graduate unemployment addressed through public sector job creation.
As Sri Lanka advances its digital transition in taxation and governance, it must now balance the promise of efficiency with the threat of authoritarian overreach—a dilemma that will shape the nation’s economic and democratic trajectory in the years ahead.