• Number of holders doubled since 2016
• Business under temporary VAT certificate operates only 11 months
• Names of nattamis in Pettah used for registering purposes

Temporary Value Added Tax (VAT) Certificate Holders in Sri Lanka have more than doubled to 31% since 2016 as a means to escape the tax net while reputed companies use them to import undervalued products, Sri Lanka Customs pointed out.

Attending the Sectoral Committee on Economic and Physical Plans last week, Sri Lanka Customs officials said that temporary VAT holders in Sri Lanka have increased from 14% in 2016 to 31% by 2023.

It was revealed that the businesses under the temporary VAT certificate operates for 11 months prior to closing down by completely stopping all the imports, in order to avoid paying taxes and paying VAT as permanent holders. After which, new businesses are formed mostly under the names of nattamis in the Pettah market.

Customs revealed that most of the reputed companies in Sri Lanka import goods through these third-party businesses by undervaluing the imports, finished textile products are one of the examples of such products imported through temporary VAT holders.

It was also said that most of the telephone service providers in Sri Lanka do not import mobile phones which they advertise directly but through an on-approval bill basis from such third parties. According to Sri Lanka Customs statistics, about 40% of phones imported by telephone service providers are imported through such temporary VAT holders.

The Customs proposed to the committee, to impose a 5% withholding tax on all temporary VAT holders in Sri Lanka which will force them to be permanent VAT holders and open tax files, and deduct the 5% withholding tax from the taxes paid by such businesses.

Customs revealed that such a measure will force the reputed companies to import directly rather than through a third party while the imports will not be undervalued by the companies as it will be reflected in the profits and thereby subjected to taxes.