Budget’s turnover tax a wrong tool: Suresh Perera
- KPMG says turnover tax unnecessary alongside VAT
- Raises concerns over frequent changes to VAT rate
- Suggests Govt. should create mechanism to address market manipulation
By Imsha Iqbal
The turnover tax, termed “Social Security Contribution”, which was proposed by the recently presented Budget 2022 by Finance Minister Basil Rajapaksa, is a “wrong tool”, stated KPMG Tax and Regulatory Division Principal Suresh Perera.
He made this statement yesterday (17) during the webinar organised by the National Chamber of Exporters of Sri Lanka (NCE).
The Budget 2022 proposed a “Social Security Contribution” aiming to rebuild Sri Lanka’s economy affected by the Covid pandemic. This contribution will be charged at 2.5% on the annual threshold turnover exceeding Rs. 120 million.
Rajapaksa expects Rs. 140 billion as revenue through this contribution and this will be effective from 1 April 2022.
Making the presentation as the guest speaker for the webinar, while clarifying the Budget proposals and its impact on trade, exporters as well as importers, he further stated that when the value-added tax (VAT) is in effect, the turnover tax would not be necessary. He also raised a concern regarding the frequency of rate changes in VAT.
He suggested that the Government of Sri Lanka should create a mechanism to hinder market manipulation by traders. “To fulfil the revenue shortage, I would have used VAT as the tool,” Perera suggested.
Referring to the statement made by the Governor of the Central Bank of Sri Lanka (CBSL) when he said the tax was imposed in order to mitigate the financial situation that has arisen in the country due to the government revenue shortage along with the foreign exchange crisis amidst the pandemic, he said he understood what the Governor meant.
Nevertheless, Perera explained that bringing short-term tax in order to cope up with a revenue shortage cannot be taken as the best solution on the aforesaid matter.
VAT on banks and financial service providers under the supply of financial services by specified institutions is proposed to be increased to 18% from 15% under Budget 2022. This tax should be paid monthly from 1 January 2022 to 31 December 2022. Furthermore, this tax should not be shifted to the customer, the Budget firmly stated.