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Goods and Services Tax within first quarter 

23 Jan 2021

  • Bill at draft stage now

  • Single tax replacing existing taxes including VAT and Income Tax

    [caption id="attachment_115569" align="alignright" width="300"] Minister of Trade Dr. Bandula Gunawardana[/caption] The Goods and Services Tax (GST), which was announced under the Budget 2021, is expected to come into effect before the end of the first quarter this year, The Sunday Morning Business learns.  Speaking to The Sunday Morning Business, Treasury Secretary S.R. Attygalle stated that the necessary document to implement the tax is being drafted at the moment, and that it will be subsequently submitted to the Parliament for approval.  “It is a single tax because we want to simplify the existing tax system without having five, six taxes for one product or service. It is one single tax, like the International Monetary Fund (IMF) wants,” Attygalle added.  On a further note, he added that the percentage of the tax would depend on the commodities and would be decided shortly. Announcing the Budget 2021, Prime Minister Mahinda Rajapaksa, who is also the Minister of Finance, stated the country will introduce a GST for items including vehicles, cigarettes, telecommunication, alcohol, and betting and gaming.  Ministry of Finance Department of Fiscal Policy Director Kapila Senanayake stated that preparation for the implementation is almost completed in a simplified tax structure which would benefit the respective companies.  “For example, take vehicles: This has excise special provision, luxury tax, vehicle entitlement levy, and other taxes for different categories. However, through this new implementation, it will be only one tax. It's easy to implement as there won't be any issues,” Senanayake added.  [caption id="attachment_115565" align="alignright" width="224"] Treasury Secretary S.R. Attygalle[/caption] He added that the payments of tax will be easy, collection of tax would be easy, and it will be transparent because of the online payment system.  “I think it's beneficial to all businesses as well as all other parties. Some of the companies have sent some proposals on how to implement this tax and we will also analyse their concerns as well, but it's not discussed yet,” Senanayake added.   Meanwhile, Minister of Trade Dr. Bandula Gunawardana stated that since the current Government came to power, Income Tax, Value Added Tax (VAT), and other taxes have been reduced “significantly”. Therefore, introducing GST would benefit the Government in terms of tax revenue. We also spoke to an alcohol company that would be subjected to this tax before the end of the first quarter. A senior company official who wished to remain anonymous told us that the industry is not certain about the tax or the tax structure, and added that whilst they have spoken to the relevant authorities, no clear directives were given to the industry yet.  “They are combining all the existing taxes. As of now, taxes imposed on those categories are not consistent; some are charged on value (VAT), some are product-based, and some are revenue and unit-based, and they are trying to merge them together, so this is not easy – it is a cumbersome process. We still do not know the impact we will face,” the official noted.  Meanwhile, another leading alcohol manufacturer told us that they have not received anything in writing and do not want to comment on the tax until they do. Neighbouring India too has a GST tax system implemented. In India, the GST is based on the consumption of goods and services. It is proposed to be levied from manufacture up to final consumption with credit taxes paid at previous stages available to be setoff. In a nutshell, only value addition will be taxed and the burden of tax is to be borne by the final consumer. Accordingly, tobacco and tobacco products are subject to GST.  The introduction of GST amalgamating a large number of central and state taxes into a single tax allows the setoff of prior-stage taxes, hence mitigating the ill effects of cascading and paves the way for a common national market.  For the consumers, the biggest gain would be in terms of a reduction in the overall tax burden on goods, which is currently estimated at 25-30%. The introduction of GST makes products competitive in the domestic and international markets.  Furthermore, according to the Central Board of Excise and Customs, New Delhi states that the tax on goods and services helps to spur economic growth. "There may also be revenue gain for the centre and the states due to widening of the tax base, increase in trade volumes, and improved tax compliance. Last but not least, this tax, because of its transparent character, would be easier to administer,” the statement added.

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