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Thursday, 27 October 2016 00:00 - - {{hitsCtrl.values.hits}}
After months of uncertainty the Value Added Tax (VAT) Amendment Bill was passed in parliament yesterday, increasing taxes from 11% to 15% with several amendments that included Finance Minister Ravi Karunanyake pledging to bring fresh regulations to ensure exemptions applicable to health services raised by opposition members. 
The controversial Bill was deemed unconstitutional by the Supreme Court in July but the latest draft was cleared by the court on Tuesday.
Voting by name was taken at the 2nd reading where 112 voted in favour while 46 members were against. The vote taken after the third reading brought in only 76 votes in favour of the amendments while 23 voted against the Bill, mostly due to members leaving the well of the House.
The 15% increase in VAT exempts certain services in healthcare, housing and smart phones while increasing postal charges, call charges, tobacco and liquor prices, Finance Minister Ravi Karunanayake highlighted.
He claimed the Government is not in favour of increasing taxes, but had no option but to do so due to large amounts of debt created by the last Government. He claimed that the additional 4% is to be utilised to pay the loans taken by the Rajapaksa regime and would be removed later. The Government expects to raise Rs. 10 b in a year with Rs. 1.8 b to be raised in the remaining two months of 2016.
A list of 74 items including wheat flour, bread, milk powder, rice, tea, coconuts, eggs, sugar and dhal are exempted from VAT, he informed Parliament.
“There is no direct impact on cost of living from this increase. The prices of 25 essential food items have come down comparatively compared with other prices, which prevailed before 8 January 2015,” Karunanayake insisted.
According to Minister Karunanayake, the Government will take all possible measures to widen the base of income tax payers. “When we took over the Government there were 694,000 pending tax files at Department of Inland Revenue. We could increase it to over 1.4 million within a short period. We need to broaden the tax payer base. We have started digitalisation and connected it with unique identification, enabling a central data collection and integrated accounting system. There are 21,000 VAT files in the country against millions of businesses. We need to double this to save the economy,” he said.
Karunanayake claimed that an increase in income taxes would help to remove the tax burden from the ordinary people while dismissing claims that the Government is working according to an agenda dictated by the International Monetary Fund (IMF).
“This is a false accusation and we will not follow their instructions. Mattala Airport has incurred a loss of Rs. 13,600 m, Hambantota Harbour has incurred a loss of Rs. 37,200 m, Hambantota Convention Centre has lost Rs. 850 m, Akuregoda Defence Complex estimated at Rs.19,800 m has passed three times this estimate. Rs. 9,700 m has been spent on the Lotus Tower. We have now found a way for a public-private partnership with a Chinese company. We will be transferring the total debt to them. Don’t look at this with a political angle. Let’s join hands to build Sri Lanka,” he added.
Joint Opposition MP Bandula Gunawardane, one of the three petitioners against the VAT Amendment Bill at the Supreme Court in July, claimed that the earlier Bill included the health sector for VAT collection. “We felt that it was unfair that certain surgeries were subjected to VAT. We held that free health and education are fundamental rights of our citizens.” An amendment proposed by Gunawardane to ensure that all health services are exempted from VAT was rejected by the Finance Minister. However Karunanayake assured that the opposition members concerns would be addressed when regulations are issued.
Joining the debate in support of the Bill, State Enterprise Development Minister Eran Wickramaratne stated that small merchants who earlier staged nationwide protests over imposing VAT on their businesses have now been excluded from the tax.
Wickramaratne also highlighted that the government is compelled to impose this tax to address the debt crisis. “The country has a huge debt burden. In 2000 debt was 96% of GDP but it reduced gradually till 2015. But the component of foreign loans has increased over the years; further the interest paid has also increased as the loans were obtained from commercial markets.”
Wickramaratne also claimed that there was no environment to negotiate repayment with any of the multinational commercial banks, as they may have done with international financial organisations which Sri Lanka is a part of. The per capita debt which was at Rs. 63,000 in year 2000 rose to Rs. 4000,000 in 2015, he informed the House. However he claimed that the number is much higher, but remains low as the Rupee exchange rate has been artificially managed.
Wickremeratne argued that the former regime’s economic policy also negatively influenced Government revenue. Government revenue reduced from 17% of GDP in 2005 to just 12% of GDP in 2015.
“As the Government revenue reduces, the services given to the people will also reduce,” he highlighted, promising to remove the tax in future.
“This is a progressive tax unlike the Port and Airport Development Levy (PAL) imposed by the previous regime which was deemed to hinder investment even by World Trade Organization and other investors,” he said.
In his speech Wickremeratne also proposed to set up an office to monitor Budget implementation, and to ensure more transparency in preparation in the upcoming Budget. Highlighting that Sri Lanka is ranked very low even among South Asian countries in disseminating information on national Budget process, he said the Government should facilitate information sharing with the public.
Parliament yesterday approved Amendment Bills on the Ports and Airports Development Levy and Nation Building Tax (NBT) unanimously while the Appropriation (Amendment) Bill was also passed.
The Appropriation Bill was passed with a vote taken at the Second Reading, with 112 voting in favour of it and 45 against it.
The NBT Amendment, which was mired in controversy along with the Amendment in Value-Added Tax when it was first proposed in Parliament in May, was deemed constitutional by the Supreme Court, the Speaker informed Parliament on 22 September.
The NBT Amendment Bill was approved by the House yesterday without a vote.
NBT was imposed with effect from 1 February 2009 and was subsequently amended a few times. However, the amendment moved in August was challenged by a public interest litigant petitioning against retrospective tax liabilities.
