Federation of Chambers of Commerce & Industry of Sri Lanka President Sarath Kahapalaarachchi (centre) briefs the media yesterday. Others from left are Contractor’s Association of Sri Lanka Chairman Sunil Liyanarachchi and FCCISL Vice President Shirley Jayawardena - Pic by Shehan Gunasekara
By Hiruni Dabarera
The countrywide represented private sector lobby yesterday called on the Government to simplify the VAT system by reducing it from the current 15% to 5% and clean up misunderstandings on how it should be levied as it is hampering profits.
“The VAT increase from 11% to 15% since May has only led to a tail-off of revenue owing to its confusing nature,” Federation of Chambers of Commerce and Industry (FCCISL) of Sri Lanka President Sarath Kahapalaarachchi told reporters.
He criticised the Government for failing to explain the specific stages at which to impose VAT insisting it misleads producers and consumers. According to him retailers and manufacturers should be educated clearly on what VAT is, how it should be charged and how to register with the income tax department for VAT.
During last month the Federation has received several complaints on how retail stores within the same shopping complex sold goods at different prices due to the VAT increase.
Accordingly, the companies who were registered for VAT had charged higher prices over the rest. This has resulted in a considerable fall in sales.
“At present, companies that earn a turnover above Rs. 3 million a quarter are registered for VAT. Some of these companies can produce their VAT bills to the government and get them reimbursed. But Small and Medium Enterprises (SMEs) and small-scale retailers in rural areas are unable to obtain this. Hence, they are at a loss. This, certainly, is not the way forward for the Government which hopes to promote revenue earnings through a VAT increase,” the President elaborated. Last year 35,000 VAT files of SMEs were cancelled.
Therefore, the Federation appealed to the Government to introduce a 5% VAT on all businesses and eliminate the VAT registration process.
“VAT increase has also affected the education and health sectors adversely. Statistics denote how the ageing population of Sri Lanka is increasing and this means there is an expected increase in demand for healthcare facilities. Thus, this increment has become crucial to every segment of the society,” expressed the FCCISL Secretary General Ajith D. Perera.
“Excluding the apparel sector, all other export industries in Sri Lanka are at a quite depressing state when comparing with the rest of the world. This is because the productivity levels in these sectors are quite low, and hence the cost has marginally increased. Our tea which was known as the world best was lost to Kenya owing to their lower prices. Hence, I believe that it is the duty of the Government to introduce long-term productivity improvement programs equal to Japan’s recovery story after the World War II, if they are to yield the benefits of the VAT increase,” the Secretary General opined.
Since productivity of local products is low these goods lose demand in the international market as other countries in the region experience better productivity at lower cost.
The Federation declared they are hoping to meet with the President to make him aware of the adverse impacts of the VAT increase in future.