Despite being positioned below the Rs. 60 million threshold, Sri Lanka’s Trade Ministry has offered Small and Medium Enterprises (SME) suppliers for supermarket chains to register for Value Added Tax (VAT) voluntarily to stay competitive in supply chains, Trade Minister Nalin Fernando said.

Speaking to TV Derana on Monday (29), the Minister said that the supermarket chains operating in the country avoid getting suppliers from SME sector players who are not VAT registered as they have to pay more for the supplies.

Also, Minister Fernando said some supermarket chains have asked suppliers to add the 18% VAT to their margins, increasing the prices of supplies from the SME players and making them less competitive which will eventually lead to loss of business. 

The Minister said that the SME players have expressed their willingness to get VAT registered in order to survive and added that such VAT registrations will also increase the revenue to the Government as well. 

He added that such registrations have no legal barrier as the businesses are to register for  VAT voluntarily.

Sri Lanka expects the VAT revenue to drive revenue growth in 2024 while VAT is expected to collect Rs 1,400 billion to reach 4% of the GDP.

The Government also decided to remove VAT exemptions granted on 95 classes of items and push the VAT threshold down to Rs 60 million per annum from Rs 80 million to broaden the VAT base.

At a KPMG webinar held in December 2023, Tax expert, Suresh Perera said that if VAT exemption is provided at the end of the supply chain there is a loss of VAT revenue to the Government while, if the exemption is granted in the middle of the supply chain then that results in a cascading effect where the VAT system becomes a turnover tax system.