Monday, 9 December 2013 00:00
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In the past, exemption of VAT was granted mainly on pharmaceuticals and goods included in the Special Commodity Act. Now, according to the new VAT proposal, deductions for exempt turnover are restricted to 25% of the total turnover.
For example if the liable turnover is Rs. 100 million and exempt turnover is Rs. 60 million then, the exemption relief is restricted to Rs. 40 million only (i.e 25% of Rs. 160 million) so that the balance Rs. 20 million of the exempt turnover becomes liable for VAT at 12%.
Practically if exempt sales exceed 33-1/3% of liable turnover, it would have adverse effects and become VAT liable on such excess. Therefore, companies engaged in the trade of pharmaceuticals (manufacturers and importers) are adversely affected.
The public at large will be affected by the price increase of 12%. Therefore, I appeal for pharmaceutical companies be granted relief from the application of the 25% deduction in lieu of exempt sales and be given the full deduction of actual exempt sales.
Further, goods to be imported under the Special Commodity Act (excluding liable items now) also will become liable for VAT if the turnover for the next three months exceeds Rs. 250 million.
Therefore, these special commodities which qualify for exemption now, (subject to turnover being less than Rs. 250 million for the next quarter) should be given exemption from the application of 25% in lieu of exempt sales and be given full deduction of exempt sales as for pharmaceutical companies as mentioned above.
It is better for the ministry to have dialogue with trade chambers, pharmaceutical traders and importers of special commodities for granting of suitable relief.
In view of the fact that only a time period of less than a month is available, early action on this is welcome.
S.R. Balachandran
BSc.FCA, FCMA
Colombo 6
