Budget’s new taxes still not in effect

A number of new taxes and revisions to the existing taxes which were scheduled to come into effect from 1 July are still languishing at the Attorney General’s Department awaiting clearance.

The taxes were proposed under the Budget 2019 and were initially scheduled to come into effect from 1 June, but were postponed to 1 July partly due to the Easter Sunday attacks and partly due to the allocated time being insufficient.

An official from the Ministry of Finance told The Sunday Morning Business earlier last month that the implementation of the taxes would be delayed at least by a month due to these reasons and would come into effect only from 1 July.

Last week, the Ministry informed us that the documents were with the Attorney General Department.
“Attorney General’s Department had to draft relevant gazettes and amend the necessary Acts. Now, the amended ones are waiting for clearance from the AG’s Department.”

Accordingly, upon the clearance from the Department of Attorney General, the amended Acts will be submitted to the Cabinet of Ministers for its approval and will be gazetted subsequently. Following this, the gazette will be sent to the Parliament and be issued afterwards.

The relevant taxes concern offshore payments, apartment sales, cigarette prices, and import duties on beverages.

The Budget 2019 introduced a 3.5% Nation Building Tax (NBT) in place of existing stamp duty on all foreign payments made through any credit cards and debit cards to capture revenue from offshore digital services. This has been met with opposition from the IT sector, including The Federation of the Information Technology Industry Sri Lanka (FITIS).

The Budget also introduced a 15% Value Added Tax (VAT) on apartment sales, following which condominium developers began lobbying for VAT exemptions for ongoing projects. Their argument was that they have neared the completion of construction work and imposing VAT on these apartments is unreasonable as all their contracts and pricing were based on previously existing tariffs.

However, despite opposition from condominium developers, the Government decided to implement the VAT from 1 April, but has once again failed to implement due to procedural delays. When the VAT comes into effect, only the apartments which enter into sales and purchase agreements (SPA) after the bill will be subjected to VAT. The levy would be imposed in accordance with the Government Gazette issued in August 2018, “Value Added Tax (Amendment) Act No. 25 of 2018”.

The proposal to introduce NBT on the manufacture of cigarettes however has been effective from 1 June, but requires amendment in the relevant Act. This is because cigarette manufacturing companies pay their taxes on a quarterly basis or annual basis. By the time they pay taxes from their revenue at the end of the second quarter or at the end of 2019, the tax will be levied with effect from 1 June.

Budget 2019 also proposed an increment of custom duty on imported fruit drinks with effect from 1 June.