Sri Lanka revises VAT threshold for wholesale & retail trade

Sept 14, 2016 (LBO) – Sri Lanka’s cabinet has approved a new draft bill revising the VAT liable threshold for wholesale and retail trade, a cabinet decision said. Under the new amendments, the threshold for VAT liability on wholesale or retail supply of goods has been revised to 12.

5 million rupees for a quarter, or 50 million rupees per year. The Finance Ministry said that VAT would be charged only on VAT liable goods and the VAT rate will be increased to 15 percent.

The cabinet memorandum said a deemed input credit system will be introduced on purchases made from persons not registered for VAT, but that is not included in the formal cabinet decision. The memorandum added that it has made operating leases liable for normal VAT, and only finance leases liable for VAT in financial services; but that decision is also not included in the decisions handed over to journalists. As per the cabinet decision, VAT will be imposed on private health services other than diagnostic tests, dialysis and OPD services excluding medical consultation. Telecommunication services, tobacco products, powdered milk containing added sugar or other sweetening matter will also be liable for VAT. Air ticketing fee of air passenger moving from Sri Lankan airport to an airport outside Sri Lanka will also have VAT.

New amendment has also increased the piece rate of garments supply to the local market by BOI companies to 75 rupees per piece. Confusion aroused when the co-cabinet spokesman Rajitha Senarathne said that the VAT will be immediately effective after publishing the gazette notification by today or tomorrow. After contacting the Finance Ministry, co-cabinet spokesman Gayantha Karunathilake clarified that the VAT hike will be in effect only after getting Parliamentary approval. Senarathne said the VAT will not be imposed as a retrospective tax but when asked whether there will be a VAT refund for those who already paid the increased tax, Senarathne said he is unaware of such a programme. The draft bill for VAT amendment is to be published in the gazette soon and will also be submitted to the Parliament for approval in the coming weeks, Minister Karunathilake said.