Timing of VAT hike raises concerns among tax experts

22 December 2023 08:31 am - 17 - {{hitsCtrl.values.hits}}

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Say probably the right policy, but rolled out at the wrong time

Assert the need for better planning and a gradual roll-out
Point out that traders would use VAT for profiteering
Caution that the move will result in major tax evasion
Say high possibility of non-VAT registered suppliers being left out

As the government is leaving no stone unturned to increase tax revenue, experts in the field asserted that while doing away with Value Added Tax (VAT) exemptions is necessary, the authorities couldn’t have picked a worse time to implement the policy.

Sri Lanka is already well-known for implementing policies in a rush, which almost all the time has resulted in detrimental outcomes for businesses and consumers alike. In this backdrop tax consultants are raising concerns on the rush to remove VAT exemptions and hike the VAT rate by 3 percent.

“We are in 100 percent agreement in the implementation of the VAT exemption, but taking into consideration the country's situation, this is the wrong time for that. It is also the wrong way to fix this,” said Suresh Perera KPMG, Principal Tax & Regulatory.

Addressing a webinar organised by CMA that explored the impact of the VAT on industry, commerce, and overall society, Perera pointed out that when implementing tax policies, it is imperative to do with a plan that must be rolled out gradually, not overnight.

According to him, the market will witness a price surge and traders would conveniently attribute it to the
increase in VAT.

“Businesses and traders will use this as an opportunity to make super profits. No one is going to sit and calculate (new prices) properly. So there is a good opportunity for the traders to get a good margin,” he cautioned.

Meanwhile, Gajma & Co. Senior Partner N. R. Gajendran noted that with the new modified VAT system, the authorities should gear up to face the consequences that follow as there will be large-scale evasion.
“There are people who are speaking to professionals who have stated that they have to pay these taxes but don’t have money to pay. The question is with this move, will the government reach the revenue they are expecting?” stated Gajendran.

Highlighting some of the issues in removing VAT exemptions, Asset Advisory Partners MD, Athula Ranaweera stated that several areas need to be well defined to ensure the policy is rolled out in a manner that doesn’t favour a segment, and lets down another.

He pointed out that to survive and compete in the market, there is a high possibility that VAT-registered traders will focus more on purchasing from VAT-registered suppliers over those who are not, to get input credit.

The government has announced the increase of VAT from 15 percent to 18 percent with effect from 1 January 2024. Although the increase is gazetted, its incorporation into the Act via the amendment Bill, released on December 14, is pending.

Similarly, the VAT liable threshold was decreased from Rs. 80 million to Rs. 60 million, but again is pending incorporation into the Act.

Comments - 17

Jayantha Friday, 22 December 2023 09:17 AM

We.may see an uprising again within next year for sure. People are struggling to even match day to day expenses and this will worsen the situation.

Patriot Friday, 22 December 2023 09:42 AM

Waiting for others to do your dirty work?

Patriot Friday, 22 December 2023 09:44 AM

What's the best time then? Government did this due to the immediate need of increasing the revenue. So if this isn't done now what's the purpose of doing it anyway? What sort of experts are these?

Onlooker Friday, 22 December 2023 12:11 PM

They have stated the best time as when implementing tax policies, it is imperative to do with a plan that must be rolled out gradually, not overnight. Recently Govt is doing a lot of things willy nilly without considering that they will not meet targets if done haphazardly.

Lucky. Friday, 22 December 2023 10:41 AM

AGREED ! I n the sense " what type of experts" are these ?

Truth Friday, 22 December 2023 10:59 AM

@Patriot. Raising the Tax rates are an instant and easy solution. The real exercise should be to ensure better compliance. Informal business practices and corruption are institutionalised in our country. A large percentage of Tax revenue ends in the pockets of cronies and informal businessmen.

SENIOR CITIZEN Friday, 22 December 2023 11:20 AM

PLEASE INCREASE THE FD RATE FOR SENIOR CITIZENS TOO AT THIS POINT OF TIME ... HOW DO WE LIVE WITH THIS POOR RATE OF MONTHLY INTEREST ALLOWED TO US OLD FOLK WHO ARE SUFFERING TODAY ?

Niroshan Friday, 22 December 2023 04:32 PM

I agree with you. I have seen many senior citizens who worked abroad returned empty handed after fulfilling their commitments. During their stay abroad they contributed immensely to the country's economy. Many are suffering from chronic diseases. It the government's responsibility to help them. I request our great president to take notice of this matter.

Niroshan Friday, 22 December 2023 04:32 PM

I agree with you. I have seen many senior citizens who worked abroad returned empty handed after fulfilling their commitments. During their stay abroad they contributed immensely to the country's economy. Many are suffering from chronic diseases. It the government's responsibility to help them. I request our great president to take notice of this matter.

Gama Rala Friday, 22 December 2023 11:22 PM

Who is going to pay for the increased FD rates? You should be thankful you have FDs. Most seniors don't. It is selfish ask for FD rate increase that would benefit only a limited number of individuals. What is needed is an universal old age pension that would benefit all seniors.

Kandiah Balendran Friday, 22 December 2023 05:18 PM

Tax experts help the big fish evade taxes and the ordinary people have to pay more.

Suresh Perera Friday, 22 December 2023 05:19 PM

Best way to avoid tax is to invest in Havelock city.

Sivalingam Friday, 22 December 2023 05:20 PM

Pettah traders don't pay tax on cash sales of smuggled items.

Gama Rala Friday, 22 December 2023 11:35 PM

In Sri Lanka, even the tax experts are corrupt. They purposely mislead public. VAT is not a business expenses nor the businesses pay VAT. It is the consumer who pay VAT. Businesses collects VAT from consumer on behalf if the Govt. of Sri Lanka and remits it after deducting VAT paid on purchases and expenses. Businesses re merely collectors of VAT on behalf of GOSL. To say business do not pay money to pay VAT is so misleading. It means that businesses have spent VAT collected from consumers rather than remitting it to the government.

Gama Rala Friday, 22 December 2023 11:42 PM

How could businesses earn super profits when the price is determine by supply and demand. If the so called Tax Experts have such a concern, they should suggested a transparent VAT invoicing where VAT is shown separately on invoice, so the consumer would know the VAT they pay. Another thing they don't mention is the extremely high annual VAT threshold of $80 million. The business thqt have sales over $80 million do not have to charge or remit VAT.

An observer Saturday, 23 December 2023 11:16 AM

You are well educated and you have money.with money respect, dignity, pride, calmness, politeness etc. all follows and safeguarded.VAT and COL is only for the middle class (if their is one now)bcos they have some sort of decency and self respect in living.Articles of this nature is pure eye wash and forgotten in due time

Vis Saturday, 23 December 2023 07:25 PM

Government has sovereign responsibility to increase income sources to the population before taxing. Increasing taxes on everything without any disposable income, people will be pushed below the poverty line and out of the system. Many people will avoid banks and taxes, many children will leave schools and many people will be depressed and go for cheap intoxication.

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Timing of VAT hike raises concerns among tax experts

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