Tax advisory

I am happy to note that the Department of Inland Revenue is going to provide free tax advisory service to the public at large, especially the taxpayers. I welcome this news.

However, it is better for the Department of Inland Revenue to give a hearing to tax payers’ problems whenever a new tax is introduced. It will make the taxpayers cooperate with the Department of Inland Revenue.

For example, effective 1 January 2013, VAT is payable by wholesalers and retailers (including supermarkets), if the quarterly turnover is more than Rs. 500 million. In fact the Government has permitted the supermarkets and others to recover VAT at 12% over and above MRP (Maximum Retail Price) which is marked on the product. By this all items in the supermarkets have become expensive.

The outcome of this is:

• The cost of living has gone up for supermarket customers
• Supermarkets and other large traders lose their sales materially
• Supermarket sales would be taken over by small wholesalers and retailers
• Locally produced cheap items would not be sold in supermarkets
• Supermarkets may have to close down or reduce their outlets
• In addition the Department of Inland Revenue loses major revenue on:
• VAT to be paid by supermarket as sales will drop
• VAT need not be paid by small traders who take over supermarkets’ share of sales

Tax on supermarket is 28% where as small traders pay 12% on profits not exceeding five million.

It is not possible to expect all small traders to account for income. They may not issue receipts in the proper manner. Their accounts may not be audited and returns not submitted to the Department of Inland Revenue.

What the supermarkets wanted was the refund in respect of VAT embedded on stocks held as at 31 December 2012. By this method, the prices would not go up by 12% and there will be healthy competition between supermarkets and small traders.

Since all supermarkets are computerised, obtaining information about stocks as at 31 December 2012 is not difficult. It is better for the Government to consider this with an open mind and approve the claim in respect of VAT embedded in stocks as at 31 December 2012.

Better late than never!

S.R. Balachandran