Online gambling surge leaves Sri Lanka with massive tax revenue leakage

Sri Lanka is losing vast amounts of potential state revenue as up to 70 percent of the nation's gambling activity has migrated to online platforms operating largely outside the domestic tax net, according to tax and policy experts.

Tax expert Suresh Perera of KPMG Sri Lanka and Dr. Sudaraka Ariyarathne, a Research Fellow at the Advocata Institute, highlighted critical enforcement loopholes within the island's regulatory and fiscal frameworks.

The warnings come in the wake of recent state action on 5 August 2026, when authorities initially blocked 24 unlicensed gambling websites including major international platforms such as Stake, bet365, Betway, and 1xBet under the Gambling Regulatory Authority Act No. 17 of 2025, before expanding the ban to cover 122 platforms.

The revenue leakage stems primarily from foreign operators lacking a physical footprint in Sri Lanka, which allows them to evade the 45 percent corporate income tax and the betting and gaming levy despite serving local customers.

Suresh Perera stated that the state effectively collects zero revenue from the fastest-growing segment of the gaming industry because offshore operators simply ignore local levy requirements and fall outside traditional tax jurisdiction.

He noted that the government should focus on capturing these uncollected revenues from foreign operators rather than imposing additional tax burdens on lower and middle-income citizens, suggesting that Sri Lanka adopt modern tax concepts such as India's significant economic presence rule to tax non-resident digital entities.

Meanwhile, Dr. Sudaraka Ariyarathne pointed out that domestic and foreign digital platforms aggressively target young sports fans from lower socio-economic backgrounds with promises of easy wins that frequently lead to financial distress.

He noted that simple domain blocking remains ineffective because users bypass restrictions using virtual private networks, emphasizing instead the need to strictly regulate financial payment intermediaries and control digital marketing practices.