Sri Lanka has foregone over Rs. 240 billion in tax revenue for the exemption of Value Added Tax (VAT) and Social Security Contribution Levy (SSCL) in the first half of this year for Non-Board of Investments (BOI), Port City, and Strategic Development Projects, the Ministry of Finance said.

In its tax expenditure statement for 2024/2025, the Finance Ministry said that VAT and SSCL Expenditure for Non-BOI Companies, excluding SDP and Port City Projects, amounted to Rs. 243.8 billion between January and June.

Of the VAT tax expenditure, over Rs. 99.4 billion was foregone in the Wholesale and Retail sector, while Rs. 34.8 billion was foregone in the Electricity and Gas sector.

On the SSCL tax expenditure, Rs 20.2 billion were foregone in the Wholesale and Retail sector, while Rs 9.9 billion were foregone in the manufacturing sector.

The estimated tax expenditure of SSCL for the first six months of this year stood at Rs. 61.7 billion.

Finance Ministry said that it is important to note that SSCL, being a turnover tax, can have a cascading effect on the economy and that the tax burden on companies may indirectly influence the prices of goods and services, affect investment decisions, and ultimately impact other tax bases such as income tax and value-added tax. 

“In this sense, the tax expenditure associated with SSCL not only represents revenue foregone directly but also mitigates the potential cascading impact on downstream economic activities. Therefore, the majority of the tax expenditures have been granted to prevent this cascading effect on the prices of consumer goods to uplift the life standards of the general public,” the report added.