Sri Lanka delayed VAT debate in Parliament tomorrow

Oct 25, 2016 (LBO) – Sri Lanka’s much delayed Value Added Tax (VAT) amendment bill under the equitable taxation principle will be debated in parliament, Wednesday, the Finance Ministry said in a statement.

“The newly proposed VAT system is very simple and transparent,” Ravi Karunanayake, Minister of Finance said in the statement.

VAT was introduced to Sri Lanka in 2002 as a goods and services tax at the rate of 10 percent and by 2006 it was increased to 20 percent.

Meanwhile, the Supreme Court has informed the Speaker that the VAT amendment bill complies with the Constitution, Deputy Speaker Thilanga Sumathipala informed Parliament earlier, Tuesday.

The full statement is reproduced below.

New VAT Bill will remove all existing hidden taxes – Finance Minister Ravi Karunanayake…

The new Value Added Tax (VAT) Amendment Bill which would introduce an Equitable Taxation system under the norm of tax fundamentals is scheduled to be debated and passed in parliament Wednesday ( 26).

The VAT system has been simplified under the new Amended Bill by making it transparent and removing all existing hidden taxes said the Minister of Finance Ravi Karunanayake.

Value Added Tax or VAT was introduced to Sri Lankan tax system in 2002. It was 10% at the initial stages and was charged only for goods and services. However, VAT was increased from time to time and, it was 20% in 2006. VAT was imposed on whole sale and retail goods as well for the first time under the previous regime in 2013.

At that time, in addition to 12% VAT there were hidden charges added to the daily turnover exceeded 1.4 million rupees by 2014. Accordingly, though the VAT was charged only for several goods such as perfumes, biscuits, soap and processed foods, the traders were compelled to pay VAT for the entire daily turnover on the basis of 12 % after having accounted for 25 % excepted from the total turnover.

Consequent to this, shop owners were compelled to pay not only for VAT liable goods but for VAT exempted goods as well. This was against the taxation principles and a distortion of the tax system. The charge of VAT on non-taxable goods violates the globally recognized tax fundamentals.

This is also contradictory to the Equitable Taxation. The previous VAT was against the tax fundamentals, it was not transparent because it included hidden taxes and was charged from only one faction of traders despite others who sell same the goods were not brought under this VAT net. Therefore, the Government has broad based the VAT net through this new VAT Amendment Bill to do justice to the trading community.

Accordingly, the limit of tax payable daily turnover has been reduced to Rs.138, 000 while tax percentage has increased to 15% from its previous 11%. But though the percentage has been increased by 4%, it is significant that the amount of total VAT actually be paid by individual traders will be lesser than the total tax paid by them under the previous system.

The previous regime had promised the people that it would pass on the economic benefits to the masses after the end of the war. But on the contrary it imposed VAT even on essential goods instead and put more burdens on the people. It further threw the country into a huge debt trap by borrowing commercial loans at very high interest.

The Finance Minister points out that certain ministers who kept mum when VAT was increased to the maximum of 20% during the previous regime now trying to mislead the masses by saying that the New VAT Amendment Act contravenes the tax fundamentals is hilarious. At the same time, he categorically refuted it as baseless allegations.

Finance Minister Ravi Karunanayake expressed the hope that the people of this country will not have any trust on such politicians who once stated that a family of five could live for month on mere Rs.2500.