The Value Added Tax (VAT) which received a lot of criticism from the Joint Opposition and certain sections of society came into effect, as Parliament passed the legislation with a comfortable majority on Wednesday (October 26) after a lengthy debate involving arguments and counter arguments between Government and Opposition lawmakers. VAT will be effective from November 1 and accordingly, the prevailing 11 percent VAT increased to 15 percent.
Several amendments moved by the JO members, to further reduce the tax from medical services were rejected by the Government. An amendment proposed by the UPFA Colombo District MP Bandula Gunawardane calling for the exemption of health services from VAT was declined by Finance Minister Ravi Karunanayake asserting that VAT would be imposed only on medical consultation fees and in-house hospital charges. He said he would issue the necessary regulations under the Bill, subsequently.
Commencing the debate, Finance Minister Ravi Karunanayake said, the Government had set a target of Rs 10 billion as revenue from the VAT revision in 2016, but it was later reduced to Rs 6 billion when a decision was taken to impose it after five months, commencing May 2.
However, 82 items have been exempted from VAT, which has been imposed on cigarettes, liquor, telephone services, electrical equipment, perfumes, jewellery, air tickets originating from Sri Lanka and powdered milk. Except diagnostic tests, dialysis and OPD services, VAT has also been imposed on consultation fees of doctors and medical specialists (including channel services) and hospital room charges.
The VAT registration ceilings for a quarter and a year on retail and wholesale trading will remain at Rs.12.5 million or Rs.50 million respectively. The VAT registration limit for other goods and services will be Rs.3 million a quarter or Rs.12 million per year.
The Supreme Court issued an interim order on July 11 preventing the Government from implementing the 4 percent VAT increase until the relevant legislation is passed in Parliament. The Supreme Court on August 9 ordered Parliament to suspend considering a Bill to raise VAT because the drafting of the proposed legislation had not followed the due procedure. The draft Bill on VAT was approved by the Cabinet last month and the Government presented the revised VAT (Amendment) Bill before Parliament on October 4.
It was taken up for debate in the House after the Supreme Court determined that its provisions were consistent with the Constitution. Deputy Speaker Thilanga Sumathipala on Tuesday (October 25) announced to the House that the Supreme Court has ruled that the VAT (Amendment) Bill and its clauses comply with the Constitution.
Deputy Minister of Public Enterprise Development Eran Wickremaratne told the Sunday Observer that there have been several taxes over many years and some of them are para taxes, i.e. tax on tax, and therefore, retarded development. In the long run, a country should have VAT because it is a very progressive tax. “VAT is applied only when carrying out manufacturing or production on value addition. So, it is a progressive tax. The Government is basically working on VAT and eventually, will take other taxes. Taxes are required mainly because we have inherited a balance sheet which is really adverse.
One hundred percent of Government revenue goes to servicing debts accrued by the previous regime. This is a big problem. For example, in a family of four, only one person earns money and if the father brings the salary home, hundred percent of it goes to pay the mortgage of the house and there is no money left to live on. As a result, one is in a debt trap and has to get more loans to pay that. So, we are trying to correct a big problem that the previous Government has created. It cannot be corrected within a year or two, it will take a long time.
These are the right steps, and if we go in the right direction, over time, people will accrue the benefits. These revenues of taxes will be used to strengthen free education, health services, other basic services needed by the Government, i.e. - Judicial system, Defence, Armed Forces, Police and Law and Order.
The recent publication by the World Bank shows that in terms of payment of tax, of the eight South Asian countries, Sri Lanka ranks seven. It means Sri Lankans pay the lowest amount of taxes, and only in Pakistan, it is lesser. So, the question of the percentage is very subjective. Around the world, 140 countries have VAT, ranging from about 13 percent to 30 percent. At present our percentage is 15.
UPFA Ratnapura District MP Vasudeva Nanayakkara told the Sunday Observer, the JO thoroughly opposes the VAT (Amendment) Bill. “We are angry about this because it is an attack on the poor who can hardly afford to bear further burdens by way of taxes, or increase of cost of living. I challenge the Government to expose exactly by how much the cost of living will increase with this particular levy and tax, together with other taxes combined, including customs levies and NBT, and considering the rupee devaluation adding to the inflation. All that put together would mean, a family earning a monthly income of Rs.30,000 would have to pay Rs.5,000 by way of taxes. The Government’s strategy is to take the country forward - by tying the people to the yoke of the cart, like the animals. The people are tied to the yoke and are now prodded to climb up the hard-hill of the UNP economic policy. People with a high level of income, e.g. owners of companies and banks, are having a great time because their taxes have been lowered.
MP Nanayakkara said, the JO would walk among the people and explain to them that the Government is not only pro-upper class and capitalist, but also, anti-people where the people are being sacrificed at the altar of the rich. It will make all purchases required by a family to increase by so much as 15 percent.
Thereby, your income will actually be undermined and eroded. It would be felt only by those with a limited or fixed income. But, it doesn’t matter to the people who have a big income. So, this is a discriminatory tax against the poor. The Government doesn’t care about adding more burdens on the poor, they only want money to finance their budget and expenditure. Whereas, it is an unbearable burden on the people. However, the Government is also worried there will be a reaction by the people. Therefore, they say, ‘we are doing this unwillingly and it is only for a short while’. All that is to appease the people because they are afraid the people would rise in revolt.
JVP Leader MP Anura Kumara Dissanayake said, the Government, two weeks prior to the Budget, imposes a tax. This is a clear indication that this Government is not in a position to formulate an economic plan for a year. When the Government assumed office, a proposal was brought to restrict the number of Ministers to 30 and State and Deputy Ministers to 40.
However, the Government has increased the number of Ministers to 48 while the number of State and Deputy Ministers has also been significantly increased. We ask the Government, is it only the people who should tighten their belts? What about the Ministers? The model followed by leaders who ruled the country has been to impose taxes to suppress the people. The incumbent Government too follows the same strategy.
Goods exempted from VAT
Wheat flour, raw rice, sugar, dhal, dried fish, canned fish, Maldive fish, condiment, bread, liquid milk, tea, rubber, coconut, coconut oil, coconut extract, eggs, prawns, fruits, vegetables, potatoes, sprats, red onion, big onion, garlic, green gram, chillies, cowpea, gram, black gram, coriander, peanuts, fertilizer, drugs, drug manufacturing machines, drug manufacturing utensils, drug packaging machines, Ayurveda processing, wheelchairs, crutches, hearing aids, white canes, Braille machines, Braille papers, spectacle frames, spectacle manufacturing raw material, Out Patients’ services, dialysis, diagnostic tests, surgical services, diesel, transport services, kerosene, petrol, jet fuel, production tax charged vehicles, bowsers, agricultural seeds, agricultural plants, agricultural machines, tractors, paddy milling machines, bakery machines, milk processing machines, fishing gear, Greenhouses, construction ware, electricity, solar power generating equipment, power saving CFL bulbs, power saving CFL bulb manufacturing raw material, education services, library services, computers and accessories, computer software, printed books, sports goods, life insurance, mobile phones, gems, pearls and diamond, gold and platinum and housing and accommodation.