Cabinet approves draft Bill for new VAT

The Cabinet of Ministers cleared to publish the draft Bill on Value Added Tax (VAT) in the Government Gazette and subsequently tabling it in the Parliament for its approval.

“The draft Bill, prepared by the Legal Draftsman, received the Attorney General’s clearance,” Cabinet Co-Spokesman and Minister Bandula Gunawardena told journalists at the post-Cabinet meeting briefing yesterday.

In a bid to boost tax receipts by eliminating tax exemptions, the Cabinet on 5 June approved revising the Value Added Tax Act No. 14 of 2002, which will also abolish the Simplified Value Added Tax (SVAT) methodology with effect from 1 January 2024.

The move comes in despite strong protest from exporters opposing the abolition of SVAT which allowed imports of inputs without VAT. SVAT was a scheme extended to exporters to avoid delays in VAT refunds.

Several items currently exempted from the VAT will be eliminated to boost the tax revenue by 1.2% of the gross domestic product (GDP). However, health, education, agriculture and items affecting low-income families to secure fundamentals, will not be excluded.

Gunawardena said creating a comprehensive mechanism to pay VAT and bringing those absconding the payments to the tax net are key objectives of revising the law.

According to the International Monetary Fund’s (IMF) extended funding facility (EFF), two major changes to the VAT needs to be implemented include; the Government should eliminate the majority of exemptions and revise the VAT scheme and discontinue the SVAT approach.

During the six months ending June 2023, the Government revenue and grants had increased to Rs. 1,317 trillion in comparison to Rs. 919.5 billion recorded in the corresponding period of 2022, the Central Bank announced last week. 

Tax revenue amounted to Rs. 1.19 trillion as against Rs. 799 billion in 1H of last year. However, non-tax revenue was down to Rs. 116 billion from Rs. 120 billion.