VAT exemptions to bring relief

• President and PM decide essential goods, medicines and electricity off the hook 
• Govt. insists all has been done to reduce pressure on wallets 
• Only 12,000 from 77,000 registered pay VAT, new system to close off loopholes  

By Chamodi Gunawardana 

Following discussions at the Cabinet meeting, VAT exemptions have been made to several sectors, including essential goods, medicines and electricity, in an attempt to protect the public with taxes, the Government said yesterday.

The exemptions came after President Maithripala Sirisena urged the Government not to burden the public with taxes, State Finance Minister Lakshman Yapa Abeywardena told the weekly Cabinet briefing. 

His comments came after a Treasury official said last week VAT would be raised to 15% from 11% on 2 May to give a much-needed boost to public revenue.  

“There is no VAT on all essential goods. There is no VAT on electricity and medicines. The President wants to ease the burden of the poor,” Abeywardena said. “But we have to increase the taxes. Out of total tax, only 4% is from the direct tax and the rest, 96%, is from indirect taxes. We can’t increase Government revenue without increasing indirect taxes.”

Both Abeywardena and Cabinet Spokesman Dr. Rajitha Senaratne insisted the exemptions would reduce the blow to wallets. “Even though private hospitals will increase their service charges, the costs of medicine will remain the same in both public and private hospitals. We have also worked hard to reduce the impact on manufacturing industries.” 

He also said VAT would be charged directly from manufacturers and suppliers instead of from retail outlets under the new system from May. Sloppy VAT collection was a challenge for the Government, acknowledged Abeywardena, with only 12,000 from 77,000 registered VAT payers honouring their commitments. 

VAT...

“We are formulating a new method to collect taxes so that the pressure on companies and individuals who pay taxes is diminished. We understand that it is unfair to simply increase the tax percentage without ensuring that more people actually pay their taxes,” he added.  

The International Monetary Fund (IMF) has long pushed the island nation to raise taxes and called for a better monitoring system along with a simplified tax system to raise public revenue, which is currently about 11% of GDP. 

The tax measures come as the island nation reaches the final stages of negotiating an up to $1.5 billion IMF loan with a top delegation led by Finance Minister Ravi Karunanayake and Central Bank Governor Arjuna Mahendran attending the IMF Spring Meetings in Washington till the end of April.