Govt Raises Tax Rates

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The Value Added Tax (VAT) was increased from 8 per cent to 12 per cent, while the Telecommunication Levy was increased from 11.25 per cent to 15 per cent with immediate effect, the Prime Minister’s Office announced yesterday (31).

Meanwhile, in order to increase Government revenue, the Cabinet agreed to increase revenue for economic stability and to direct Legal Draughtsman to prepare the necessary amendment Bills.

Accordingly, Inland Revenue Act No. 24 of 2017, Value Added Tax Act, No. 14 of 2002, Telecommunication Levy Act No. 21 of 2011, Betting and Gaming Levy Act, No. 40 of 1988 and Fiscal Management (Responsibility) Act No. 3 of 2003.

In a statement, the PM’s Office said the VAT rate that was reduced from 15 per cent to 8 per cent with effect from 1 December 2019 and the threshold for registration of VAT was increased from Rs 3 million per quarter or Rs 12 million per annum to Rs 75 million per quarter or Rs 300 million per annum effective from 1 January 2020.

Due to the VAT reforms coupled with the impact of Covid-19, VAT revenue declined by 47 per cent to Rs 233.8 billion in 2020 from Rs 443.9 billion in 2019. In light of the decline, Wickremesinghe has proposed increasing VAT rate from 8 per cent to 12 per cent with immediate effect, decreasing VAT threshold from Rs 300 million per annum to Rs 120 million per annum effective from 1 October 2022, reviewing VAT exemption schedule and removal of unproductive exemptions based on the economic benefits, removal of the VAT exemption on Condominium Residential Apartments effective from 1 October 2022.

Other proposals that were made are the removal of zero per cent VAT rate granted on the supply of services by a hotel, guest house, restaurant or other similar businesses providing similar services, registered with the Sri Lanka Tourism Development Authority, if sixty per centum of the total value of the inputs are sourced from local supplies/sources and imposition of 12 per cent tax rate on the same effective from 1 October 2022 and making any other consequential amendments due to the above proposals.

The high tax exemption threshold and the expenditure relief together with the low tax rates have impacted the revenue performance in 2020 and 2021. Hence, Wickremesinghe stated that revising Personal Income Tax (PIT) rates progressively would raise PIT revenue considerably.

In consideration of the above, proposals are made to bring down the personal relief from Rs 3 million to Rs 1.8 million effective from 1 October 2022.

Meanwhile, the Premier also pointed out that telecommunication levy was reduced from 15 per cent to 11.25 per cent effective from 1 December 2019 which led to a decrease in revenue by 28 per cent to Rs. 13.1 billion in 2020 from Rs. 18.3 billion in 2019. Hence, it is proposed to increase the Telecommunication Levy from 11.25 per cent to 15 per cent with immediate effect.

Accordingly, approval was given by the Cabinet to direct the Legal Draftsman to draft the Inland Revenue (Amendment) Bill incorporating the proposals, to submit the draft Bill to Attorney General for legal clearance and to publish the draft Bill in the Government Gazette and submit the same for the approval of the Parliament.

With respect to VAT reforms, Cabinet approved to issue a Gazette Notification to increase the VAT rate, to direct the Legal Draftsman to draft the VAT (Amendment) Bill incorporating the proposals, to submit the draft Bill referred in (ii) above to Attorney General for legal clearance and to publish the draft Bill in the Government Gazette and submit the same for the approval of Parliament.

Addressing the weekly Cabinet media briefing yesterday (31), Cabinet Spokesperson Bandula Gunawardena said the Government decided to introduce a relaxed tax policy later in 2019 to reduce the rates of VAT, PIT, corporate income tax and to shrink the tax base on value added tax and income tax. As a result, Government revenue has dropped significantly.

By Thameenah Razeek