Sri Lanka Supreme Court blocks bill raising VAT

Aug 09, 2016 (LBO) – Sri Lanka’s Supreme Court has ordered parliament to stop considering a bill to raise value-added tax (VAT) because the drafting of the proposed legislation had not followed due process, the assembly speaker said on Tuesday.

The failure to raise the tax could put in jeopardy the government’s ambitious fiscal consolidation plan to reduce the budget deficit to 5.4 percent of gross domestic product (GDP) from the last year’s 7.4 percent.

However, Finance Minister Ravi Karunanayake said the government would present the bill again in the near future and raise VAT as planned, according to a Reuters report.

The government had hoped to raise revenues by 100 billion rupees ($686.8 million) this year through tax increases, mainly by putting up VAT.

On May 2, an increase in VAT to 15 percent from 11 percent took effect. But on July 11, the Supreme Court temporarily suspended the increase because it had not been approved by parliament.

A draft VAT amendment bill has been progressing. But on Tuesday, the speaker of parliament, Karu Jayasuriya, read out a court ruling saying the bill’s failure to follow constitutional processes “render the subsequent proceedings nullity”.

The finance minister said the government had submitted a VAT amendment proposal to the cabinet on Tuesday.