Sri Lanka budget cuts taxes, but imposes new one

Nov 07, 2008 (LBO) – Sri Lankan accountants say the proposed cut in Value Added Tax (VAT) in the government’s 2009 budget would not provide much relief as a new tax and higher import duties would make up for the reduction.

The budget presented to parliament by President Mahinda Rajapaksa proposed to reduce VAT, the government’s main stream of revenue, from the existing 15 percent to 12 percent to reduce the cost of living.

The reduction is estimated to cost the government 45 billion rupees as lost revenue.

Accounting firm Ernst and Young (E&Y) says the VAT reduction would be offset by the additional taxes proposed by the government.

They said the VAT reduction is just eye wash as a new one percent Nation Building Levy (NBL) is estimated to rake in 15 billion rupees while import point taxes would bring in additional 50 billion rupees to government coffers.

In addition to this other government revenue sources such as the economic service charge, excise duty, Port and Airport development Levy (PAL), telephone levy and special commodity levy are estimated to collect another 10 billion rupees.

This would provide an estimated net gain of over 30 billion rupees to the treasury as per budget offi