• DCG explains invoice issuance criteria for VAT-registered customers
• VAT invoice obligation arises upon request only for VAT crediting input 
• Registered entities mandated to display VAT registration certificates
• No surge in registrations despite VAT rate hike, lowered thresholds 
• Amendments to generate Rs. 1,400 b in revenue in ’24

The Inland Revenue Department (IRD) has clarified that there is no obligation for businesses to provide a Value-Added Tax (VAT) invoice with a breakdown of the VAT included in the prices quoted when dealing with retail consumers who are not VAT-registered.

Responding to a query by The Sunday Morning Business regarding complaints by consumers of certain establishments which charge VAT-inclusive prices without providing a breakdown of the VAT charged in receipts issued, IRD Deputy Commissioner General (DCG) – ICT Administration and Tax Operation Support D.U.A. Jayawardhana clarified that a VAT-registered establishment was only obliged to provide a VAT invoice when a request was made by a VAT-registered person or business for the purpose of crediting their input VAT. 

Elaborating further, he stated: “In order to issue a VAT invoice, the consumer must necessarily possess a VAT registration as well. A VAT-registered person issues invoices in two different ways. Firstly, for VAT-registered customers, they will issue a VAT invoice which will contain all relevant details that can be used by the customer to claim their input taxes. A customer who is not registered for VAT will be issued a VAT inclusive receipt.”

He stated that there was an obligation on every VAT-registered entity to publicly display the VAT registration certificate.

Jayawardhana noted that despite the decrease in VAT thresholds, there had not been a spike in VAT registrations at the IRD yet. He observed that businesses had very likely waited until the first quarter ended to see whether they fell within the new VAT thresholds.

On 11 December 2023, Parliament passed the Value-Added Tax (Amendment) Act No.32 of 2023, pursuant to which the VAT rate on applicable goods and services increased from 15% to 18% starting 1 January. 

Moreover, around 97 previously VAT-exempt goods and services – including fuel, gas, and telecommunication services, as well as several food products manufactured using locally-cultivated grains, locally-manufactured coconut milk, and certain locally-produced dairy products – became liable for VAT.

Along with the change in tax rates, the VAT threshold for businesses was also reduced to an annual turnover of Rs. 60 million (from Rs. 80 million) and Rs. 15 million per taxable period (from Rs. 20 million). These changes to VAT are expected to generate revenue of around Rs. 1,400 billion this year.