Locally produced milk powder which was hitherto exempted from the Valued Added Tax (VAT) has now been made liable with effect from January 1, 2017, an expert in tax policy and planning said this week. According to Suresh Perera, Principle, Tax and Regulatory at KPMG Sri Lanka, going forward both locally produced and imported milk power will be taxed at the rate of 15 percent. “When the VAT Amendment Act was passed, VAT exemption on import and supply of milk powder was removed and I think in order to create uniformity in this budget, the local milk powder has also been subjected to VAT. “So, now going forward, both local and foreign milk powder will be liable for VAT,” Perera told a postbudget forum organized by Chartered Institute of Management Accountants (CIMA) Sri Lanka Division this week. A closer look at the text of the budget speech made by the Finance Minister, Ravi Karunanayake in fact showed a proposal to that effect.
“I also propose to exempt the provision of geriatric care and child care services, certain electrical and electronic goods, locally manufactured dairy products other than milk powder from VAT,” the text of the budget 2017 showed. While this means from January 2017, the locally produced milk powder prices should go up in response to the hike in VAT, the Minister had earlier imposed a control price of Rs.295 for a 400g pack. It was only yesterday the Ceylon Chamber of Commerce, Sri Lanka’s premier business chamber, warned against price controls as such actions distort the free market. However, Perera hailed the move to reduce the VAT exemptions to a minimum, for the tax to work effectively. He took the examples of countries such as Singapore and New Zealand where there are only four to five exempted items but in Sri Lanka there is a list of 160 exempted items. “Our VAT has a problem. We have too many exemptions. For VAT to work, exemptions should not be there. So, there is a move to increase the VAT base – that is to eliminate the exemptions,” Perera explained. Meanwhile, the budget proposed to reduce the custom duty on imported milk powder by Rs.35 per kilogram to Rs.100.