🔥 Trending Sri Lanka Cracks Down on Tax Evasion: Legal Cases Filed Against Businesses

As of July 2026, Sri Lanka is actively pursuing several legal cases and implementing stricter measures against tax evasion across various sectors. The Inland Revenue Department (IRD) is taking a more aggressive stance, including initiating criminal proceedings under new laws ³.

Key Developments and Notable Cases

Liquor Companies and Unpaid Taxes

The Attorney General informed the Supreme Court on May 20, 2026, that legal action has commenced against several liquor companies to recover unpaid taxes ¹⁵. These cases will be filed in District Courts across Sri Lanka. While specific company names and the total tax amounts owed are yet to be publicly disclosed, this indicates a significant push to address tax defaults in the liquor industry ⁵.

VAT Evasion Cases

Value Added Tax (VAT) evasion remains a prominent issue, with several high-profile cases:

• Arjun Aloysius and W.M. Mendis Distilleries: The Colombo Magistrate's Court denied a bail request for Arjun Aloysius, Director of W.M. Mendis Distilleries, and two others. They were previously sentenced to imprisonment for VAT evasion ⁸.
• Colombo Municipal Council (CMC): A case has been filed against the CMC over alleged VAT evasion, highlighting that even public entities are under scrutiny ².

Customs-Related Tax Evasion

Customs fraud, often involving under-invoicing and misdeclaration, is also under the spotlight:

• House of Fashion: This well-known retail apparel business is facing a severe legal crisis due to alleged under-invoicing, tax evasion, and claims of counterfeit goods against its owner, Priyantha Jayawardena ⁴.
• BYD and Local Agent: Samagi Jana Balawegaya MP Mujibur Rahuman has accused the Chinese electric vehicle giant BYD and its local agents in Sri Lanka of orchestrating a sophisticated tax evasion scheme ¹⁰.

Broader Enforcement and New Laws

The IRD has stated its intention to initiate strict legal action, including prosecution, against individuals and businesses that intentionally fail to register for taxes, submit returns, or conceal income ³. Under new legal provisions, those found guilty in court could face a fine of up to 400,000 LKR, imprisonment for up to six months, or both ⁹.

Crypto Tax Enforcement

Sri Lanka is also exploring express tax legislation as a tool to curb crypto-related financial crimes and generate revenue. Recent fraud cases have underscored the need for robust tax enforcement in the cryptocurrency sector ⁶.

Impersonation and Fraud

In June 2026, a person was arrested by the Kompanna Vidya Police for impersonating an Inland Revenue Department officer and defrauding individuals ⁷. This indicates ongoing vigilance against various forms of tax-related fraud.

These cases collectively demonstrate Sri Lanka's intensified efforts to combat tax evasion and improve revenue collection through stringent legal measures and enforcement.