IRD puts VAT relief at Rs. 143 b; urges trade to pass it on to consumers

•  Conducts surveys on multiple trades; find some non-compliant
•  Legal action against errant traders under VAT Act
•  To share information with Consumer Affairs Authority for follow-up action where necessary
•  Admits the eventual onus of passing down benefits dependent on competition and ethical practices of trade or industry 

By Nisthar Cassim

The Inland Revenue Department yesterday estimated the beneficial changes made to the value added tax (VAT) to be Rs. 143 billion and urged the trade and business community to pass it on consumers. 

“We estimate Rs. 143 billion in loss of revenue from the reduction of VAT from 15% to 8% and increasing the threshold for this tax to Rs. 75 million per quarter from Rs. 3 million. We want this benefit to be shared with consumers whilst the businesses enjoy the relief as well,” IRD Commissioner General Nadun Guruge told journalists. 

Following the directive by President Gotabaya Rajapaksa for IRD and Consumer Affairs Authority (CAA) to investigate whether the trade is passing on the benefit of recent tax reductions, the revenue authority convened a media briefing to explain the benefits for both private sector and consumers. 

First benefit is direction reduction in the rate and the other is businesses and persons with a turnover of Rs. 75 million below per quarter don’t have to pay VAT. 

The IRD officers had surveyed industries and trades such as bakeries, hotels and restaurants, hardware, steel, ceramics, electronics, etc., and found out some are yet to pass on the benefits to the consumer. 

“The positive changes on VAT in effect means loss of legitimate revenue for the Government. If the trade is enjoying lower VAT rate and tax-free turnover threshold, then it is only ethical for the benefit to be passed on to consumers,” Guruge emphasised. 

Whilst specific legal action will be taken against errant trades under the VAT Act, the IRD will also share information with the CAA where necessary for the latter to take its own action. However, IRD officials said that the Revenue Authority has no say on prices and it is left to market forces and onus is on the businesses. 

Gamage said IRD will speak to relevant trades and their trade unions on the importance of and the responsibility on their part to ensure benefits are passed on to consumers. 

Apart from VAT relief, the new Government also abolished Nation Building Tax (NBT). The NBT of 2% imposed on liable turnover will be removed in respect of goods and services supplied, and 1% at wholesale point. The Economic Service Charge (ESC) of 0.5%, too, was abolished. 

Presidential Secretariat on Monday (13 January) said it has continued to receive complaints from the general public as well as reports from both print and electronic media that the tax benefits, particularly from the reduction of VAT on the sale of goods at both retail, wholesale and import points effective from 1 December 2019, have not been passed on to the consumers.

The President’s Office said among such goods, hardware, ceramics, cement and other building materials, cosmetics and day-to-day household items, garments, school books and several other goods have been mentioned. 

Further, several retail traders have informed that wholesale distributors have not given such benefits to retail businesses, and it is a few wholesale distributors and manufacturers who control the market that are disrespecting fair trade and competitive practices. Domestic manufacturers are also requested to pass tax benefits to the people in doing their business in a competitive manner.