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No transfer of VAT from IRD to Treasury

11 Apr 2021

Amidst local media reports claiming that the Value-Added Tax (VAT) has been moved from the Inland Revenue Department (IRD) to the Ministry of Finance, the Treasury vehemently denied receiving such direction from any official authority. Treasury Secretary S.R. Attygalle, speaking to The Sunday Morning Business, confirmed that these reports are rumors as he has not received any news in this regard. “No, the VAT has not been moved from IRD to Treasury,” Attygalle told us yesterday (8). In order to get further confirmation on this matter, we also spoke to the IRD Commissioner General H.M.W.C. Bandara, who also explicitly denied the ongoing rumors. “This is false news,” Bandara confirmed. The VAT was introduced by the VAT Act No. 14 of 2002 and has been in force from 1 August 2002, replacing the Goods and Services Tax (GST) which was an almost similar tax on the consumption of goods and services. According to PricewaterhouseCoopers (PwC), the VAT is payable on imported goods and on the supply of goods including wholesale and retail trade and services in Sri Lanka. Provisions are made for filing returns monthly or quarterly, based on specified criteria. Even where returns can be filed quarterly, the tax payments are required to be made on a monthly basis by a VAT-registered person. Certain specified imports and domestically supplied goods and/or services are exempt. The VAT is payable on the prescribed valuations of imports and domestic supplies at a standard rate of 8% (prior to 1 December 2019, the rate was 15%). Exports and certain specified international services are zero-rated. Apart from the above zero-rated supplies, the supply of services by a hotel guesthouse, restaurant, or other similar business providing similar services registered with Sri Lanka Tourism Development Authority (SLTDA) with 60% of local inputs is made as zero-rated supplies. Registration for VAT arises only if the quarterly value of taxable supplies exceeds Rs. 75 million or the annual value of taxable supplies exceeds Rs. 300 million with effect from 1 January 2020. However, a voluntary registration scheme is available to those who has a lessor turnover value of supply, less than Rs. 75 million a quarter. The input tax paid on the imports and supplies of goods (including capital goods) and services in a month, and used in the business of making taxable supplies in that month, can be deducted from the tax payable (output tax) on such supplies, subject to a limitation of the lesser of 100% of output tax or the actual input tax paid.


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