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Valour over VAT


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  • SC order suspends VAT increase collection until legislation is passed in P’ment 
  • PM assures legislation will get green light next Wednesday and be implemented retrospectively 
  • Says interim order not expected to have any adverse impact on Government’s revenue collection
  • Finance Ministry thrown a curve ball on VAT charges by traders for nine days, says decision has thrown up “complications”   
  • Karunanayake confident revenue targets will be met, claims 1H collection up 35% 

By Uditha Jayasinghe 

and S.S. Selvanayagam


A Supreme Court order suspending VAT increases delivered yesterday created confusion among the private sector and left the Government rushing to provide explanations ahead of ensuring that the relevant legislation is passed in Parliament next week. 

Prime Minister Ranil Wickremesinghe released a statement just hours after the verdict assuring that the legislation, which has BUP_DFTDFT-1-01already been tabled in Parliament, would be passed on 20 July. However, under the verdict traders cannot charge the VAT increase from consumers till 20 July but once the revisions are implemented they will be retrospectively applicable from 2 May, creating confusion among the public.     

The Supreme Court issued an interim order on Monday preventing the implementation of the recent revisions made to the Value Added Tax (VAT) and the Nation Building Tax (NBT) until the relevant legislation was passed in Parliament. 

“This interim order is not expected to have any adverse impact on the Government’s revenue collection. The VAT (Amendment) Bill has already been presented to the Parliament for the first reading on 8 July 2016, and the second reading is expected on 23 July 2016. 

 



The Unity Government, which has a clear majority in the Parliament, expects the legislative process to be completed before the end of the month of July 2016. Thereafter, the revised rates will be applicable with effect from 2 May 2016,” the Prime Minister’s statement said. 

Finance Minister Ravi Karunanayake also convened a hasty media briefing following the verdict but was unable to give more information on its overlapping opaque areas of tax collection till 20 July. Karunanayake stuck to the Prime Minister’s statement and insisted that VAT would be collected retrospectively once the legislation was passed but refrained from commenting on how traders could legally charge VAT for the next nine days.  

“We do not want the public misled by the court verdict. Essentially what it says is that either the Parliament has to pass the VAT increase or it has to await the court’s verdict on 6 December. We have very clearly stated that the amendments will be passed on 20 July and we have notified the court as well. The Government will be able to earn the projected revenue and it will count from 2 May,” he told reporters. 

Responding to questions, Karunanayke confirmed from 11 July-20 July the VAT increase cannot be collected due to the court verdict. “Your interpretation is that goods increase in price because of VAT so let’s see whether the prices reduce now.” 

The Finance Minister also expressed his dissatisfaction over the court’s verdict but insisted that the Government had followed standard procedure in introducing the VAT increase.  

“The people elected the Government and we are basically administrating the will of the people. Decisions such as this make things complicated. So respecting democracy makes life difficult for a Government.” 

Revenue targets for the first six months are on target with a 35% increase in total revenue as per Budget projections, the Finance Minister added.      

 



On Monday the Supreme Court issued an Interim Order suspending the intended imposition of additional liability pertaining to multi-stage tax called Value Added Tax (VAT) and the Nation Building Tax (NBT) until the final hearing and the determination of the fundamental petitions challenging it or suitably passed by the Parliament.

The bench comprising Chief Justice K. Sripavan, Justices B.P. Aluvihara and Prasanna Jayawardane observed that the notice issued by the Commissioner General of Inland Revenue Kalyani Dahanayake to the public stating that as informed by the Minister, the VAT rate of 15% and NBT rate of 2% will be implemented from May 2 is ‘ultra vires’ or beyond legal power or authority.

The Court was of the view that the Government cannot be allowed to violate the rule of law.

The Court observed that the decision to implement the increased VAT is in violation of Article 148 of the Constitution on the Control of Parliament over Public Finance, which reads: “Parliament shall have full control over public finance, no tax, rate or any other levy shall be imposed by any local authority or any other public authority, except by or under the authority of a law passed by Parliament or of any existing law and the certain principle of interpretation of Article 148 shall be understood in proper sense to the ordinary men.”

Five petitions have been filed against the VAT increases. They were from former Minister Wimal Weerawansa, Ven. Maduruoya Dharmisiri Thero, Ven. Bengamuge Nalaka Thero, the Centre for Policy Alternatives and Sivapathasunderam Sivakumar.

Manohara de Silva PC, Shavindra Fernando PC and Viran Corea appeared for the petitioners separately.

Leader of the National Freedom Front and Former Cabinet Minister Wimal Weerawansa filed his application as public interest alleging that it is ultra vires, illegal, arbitrary, unlawful and violative of fundamental rights to equality, freedom from arbitrary arrest and detention and the freedom to engage in any lawful occupation and profession.

 



He cited Finance Minister Ravi Karunanayake, Secretary to the Treasury and Finance Ministry R.H.S. Samarathunga, Commissioner General of Inland Revenue Kalyani Dahanayake and the Attorney General as respondents.

He stated that the Commissioner General of Inland Revenue on 29 April 2016 issued a notice bearing the heading ‘Notice to Taxpayers’ and the title ‘Value Added Tax (VAT) and Nation Building Tax (NBT)’ and declared that as informed by the Ministry of Finance, changes would be implemented with effect from 2 May 2016.

The notice was supplemented by a notice entitled ‘Implementation of Proposals on Value Added Tax (VAT) and Nation Building Tax (NBT) on the instruction of the Ministry of Finance’, he added.

He claims that the said heading are misleading and contrary to the law as the Commissioner General of Inland Revenue was not vested with any authority to implement proposals on the instructions of the Ministry of Finance, which has no legal authority.

He claimed there are no amending laws pertaining to VAT or NBT that have the effect of the above changes pertaining to the imposition of such taxes.


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