VAT vault before Budget

Thursday, 15 September 2016 00:04 - - {{hitsCtrl.values.hits}}

By Uditha Jayasinghe

The latest VAT proposals, covering threshold increases, deemed VAT and private health services taxes, will be implemented only after parliament approval, assured Government representatives yesterday, but would be rolled out ahead of the Budget in November.

Cabinet spokesmen Dr. Rajitha Senaratne and Gayantha Karunathilaka acknowledged to reporters that the Government was in need of revenue to meet a challenging 5.4% deficit target for 2016, which would be a significant contraction from the 7.4% posted last year.

However, Dr. Senaratne admitted Cabinet had not discussed the fate of funds that have already been collected before the Supreme Court suspension.

“We know this is an issue and the Government needs to work out a measure to deal with the collected taxes,” he said.

On Tuesday Cabinet approved a fresh set of amendments to the Value Added Tax (VAT) Act. No.14 of 2002, which was revised on the recommendations made by the Cabinet Committee on Economic Management (CCEM).

Under the new measures VAT will be fixed at 15%. It also includes the reduction of the threshold of registration for VAT from Rs.3.75 million per quarter or Rs.15 million per annum to Rs.3 million per quarter or Rs.12 million each year.

The imposition of VAT on trade, which sparked much controversy under the previous arrangement, has been amended to Rs.50 million per annum for both wholesale and retail while a deemed input credit system would be introduced on purchases made from people not registered for VAT.

Private health services other than diagnostic tests, dialysis and OPD services excluding medical consultation will be subject to VAT. Telecommunications, tobacco products, powdered milk containing added sugar, and air ticketing fees will all be subject to the VAT increase.

The Cabinet paper submitted by Finance Minister Ravi Karunanayake also included restrictions of VAT exemptions on residential accommodation give to investment projects less than $5 million.

“However, such supplies made by Strategic Development Projects approved prior to 1 November 2015 and by State development projects and other projects where the sales agreement was entered into or project completed before 1 October 2016 will continue to be exempted,” the Cabinet paper said.

Each piece of apparel supplied to the local market by Board of Investment (BOI) registered companies will be charged Rs.75 per garment.

Karunanayake had also informed Cabinet the latest VAT amendments have been referred to the Attorney General’s Department and confirmed to be in line with the Constitution. The VAT details are expected to be published in a gazette notification before being presented in parliament within the next few weeks.