From left: FCCISL Secretary General Ajith Perera, FCCISL Director Sunil Liyanarachchi, FCCISL President Sarath Kahapalaarachchi and FCCISL Vice President Shirley Jayawardena
Pic by Kushan Pathiraja
By Chandeepa Wettasinghe
In a continuation of a debate between equity and equality, the Federation of Chambers of Commerce and Industries Sri Lanka (FCCISL) recently said that the value-added tax (VAT) should be reduced and all exemptions should be removed for the benefit of both the government and the private sector.
“Either remove the 15 percent tax or impose a 5 percent tax on all businesses. Does the government want only companies making less than Rs.10 million a month to succeed?” FCCISL President Sarath Kahapalaarachchi said.
He said that small and medium enterprises (SMEs) making less than Rs.10 million cannot claim taxes in some instances, but that some SMEs not liable for VAT charge from consumers charge more than they should, making extra profits.
“And Sri Lankan consumers go for the cheapest product, not the quality, so they will go to the stores that are not VAT liable,” he added.
Kahapalaarachchi noted that there will be a significant dampening of demand due to the VAT increase, which will lower supply in return, which would force manufacturers to let go of employees.
“Because SMEs can’t claim VAT big companies with VAT numbers are claiming VAT fraudulently, and the office responsible for handling that is too small to investigate them,” he charged. FCCISL Secretary General Ajith Perera noted that if the country’s productivity was higher, the taxes could have been absorbed through exports.
“Except apparel, all our industries have low productivity so we can’t produce cheaply and compete with India or China. When taxes increase, it adds to this. We can’t compete in India even with a free trade agreement due to high prices… So there will be multiple effects from increasing taxes,” he said.
Kahapalaarachchi speculated that these problems will be solved if a 5 percent VAT is charged across all entities, instead of excluding certain parties from VAT.
“If they do that, I think there will be more revenue for the government,” he said. Tax revenue has been a key issue over the past decade, falling down to as much as 10.1 percent of gross domestic product (GDP) in 2014, before increasing to 11.5 percent of GDP in 2015. With Sri Lanka going for an International Monetary Fund bailout, increased revenue will play an even major role.
Sri Lankan citizens expect tax exemptions and welfare payments that the country’s revenue cannot afford, after being promised such gifts as election goodies over several decades.
However, the government continues to say that equity is needed instead of equality, as the rich are not paying enough taxes. However, some businesses like supermarkets are exempted from VAT. Kahapalaarachchi said that he aims to lobby to President Maithripala Sirisena to bring an equal VAT for all.
“There’s no use telling Finance Minister Ravi Karunanayake, because when the Health Minister said raising the Nation Building Tax on health will victimize the country’s increasingly ageing population, he (Karunanayake) said in parliament that taxes will not be brought down for any reason,” he said.
However, President Sirisena is unlikely to let the majority of the entrepreneurs—which include farmers—be liable for VAT, after pledging in Polonnaruwa recently to stand up to any taxes levied on the small man.