Sri Lankan private banks are in advanced talks with PayPal to enable services for freelancers and small businesses, according to TRCSL Chairperson Waruna Sri Dhanapala. While the move could transform digital commerce, concerns loom over the impending 18% VAT on foreign digital services, potentially eroding freelancers’ earnings.
For nearly fifteen years, Sri Lanka’s freelancers and small businesses have waited for a breakthrough that would allow them to fully participate in the global digital economy. Yesterday, Telecommunications Regulatory Commission of Sri Lanka (TRCSL) Chairperson Waruna Sri Dhanapala revealed that private sector banks are now in advanced discussions with multinational payments giant PayPal, raising hopes that the long-anticipated service may finally be within reach.
Speaking at a press conference, Dhanapala explained that while no official announcement has yet been made, progress has been achieved between certain private banks and PayPal. “I spoke to a relevant official at the Central Bank involved in banking oversight and payments. Officially there is no such announcement made yet. However, there is progress made among certain private sector banks with PayPal,” he said. He added that the Central Bank of Sri Lanka (CBSL) had indicated the process was in its final stages of negotiation.
This development marks a significant moment in Sri Lanka’s digital journey. For years, freelancers and entrepreneurs have struggled with limited access to international payment platforms, often relying on costly intermediaries or informal channels to receive payments from overseas clients. The absence of PayPal, a service widely available in neighbouring countries, has been a persistent obstacle to the growth of Sri Lanka’s freelance economy.
The Central Bank’s engagement with PayPal dates back almost fifteen years, though previous attempts to secure the service have faltered. In 2023, former President Ranil Wickremesinghe announced plans to facilitate the platform, but the initiative did not materialise. The renewed momentum now suggests that Sri Lanka may finally be on the cusp of joining the global PayPal network, a move that could unlock opportunities for thousands of professionals working in digital services, creative industries, and small-scale e-commerce.
Yet, even as optimism builds, a new challenge threatens to dampen enthusiasm. From 1 April this year, Sri Lanka will impose an 18% Value Added Tax (VAT) on digital services provided by non-resident foreign companies. This measure, announced in the February 2025 budget, is intended to compensate for the government’s decision not to pursue the IMF-recommended Imputed Rental Income tax. Instead, the government has chosen to target foreign digital platforms, ensuring they contribute to national revenue.
For freelancers and small businesses, however, the implications are stark. If PayPal enters the Sri Lankan market, its services will fall under the scope of the new VAT regime. This means that in addition to PayPal’s existing transaction fees, users will face an extra 18% charge on every payment processed. For individuals already operating on thin margins in competitive global marketplaces, the tax could significantly erode earnings.
The introduction of VAT on digital services reflects a broader global trend, as governments seek to regulate and tax cross-border digital transactions. Countries such as India and Australia have already implemented similar measures, arguing that foreign tech companies should not enjoy tax-free access to domestic markets. In Sri Lanka’s case, the move is framed as a necessary step to bolster state revenue while balancing fiscal reforms.
Nevertheless, the timing of the tax coincides awkwardly with the long-awaited arrival of PayPal. For many freelancers, the platform represents not just convenience but legitimacy, offering a secure and recognised channel for international payments. The additional tax burden, however, risks undermining the very benefits PayPal is expected to bring.
Freelancers working on platforms such as Upwork, Fiverr, and Freelancer.com have voiced concerns that the VAT could make Sri Lankan professionals less competitive compared to peers in other countries. Clients often choose service providers based on cost efficiency, and an 18% increase in transaction costs could tilt the balance against Sri Lankan workers. Small businesses engaged in cross-border e-commerce face similar anxieties, fearing that higher costs will discourage international customers.
The debate highlights a tension between fiscal policy and digital empowerment. On one hand, the government seeks to strengthen its revenue base in line with international financial recommendations. On the other, the country’s growing freelance sector—seen as a vital source of foreign exchange and employment—requires supportive infrastructure to thrive. PayPal’s entry could be a game-changer, but only if the ecosystem remains affordable and competitive.
Industry observers note that Sri Lanka’s freelance economy has expanded rapidly in recent years, driven by global demand for IT services, design, content creation, and digital marketing. Many young professionals have embraced freelancing as a viable career path, especially amid limited domestic job opportunities. Access to PayPal would streamline payment processes, reduce reliance on costly alternatives, and enhance trust between Sri Lankan freelancers and international clients.
The government now faces the delicate task of balancing fiscal necessity with economic opportunity. While the VAT on digital services is expected to generate revenue, it risks alienating a sector that has become a crucial part of Sri Lanka’s economic resilience. Policymakers may need to consider exemptions, rebates, or alternative mechanisms to ensure that freelancers and small businesses are not disproportionately affected.
For now, anticipation remains high. The prospect of PayPal finally opening its doors to Sri Lankan users is a milestone many thought would never arrive. Yet, as the country edges closer to integration with the global digital economy, the question of affordability looms large. Will the benefits of PayPal outweigh the costs imposed by VAT? Or will Sri Lanka’s freelancers find themselves celebrating access to a long-awaited service, only to discover that it comes at too steep a price?
The coming months will be decisive. If negotiations conclude successfully, Sri Lanka could witness a transformation in its digital commerce landscape. But unless the government addresses the concerns of freelancers and small businesses, the promise of PayPal may be overshadowed by the burden of taxation. For a nation striving to position itself as a hub for digital talent, the stakes could not be higher.
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