15 November 2023 08:18 am Views - 2205
Prior to the budget, the Cabinet of Ministers approved a 3 percent VAT hike to 18 percent effective from January 1, 2024, and said most of the VAT exemptions would also be removed.
The 2024 budget presented to parliament on Monday said almost all the VAT exemptions barring education, healthcare and food will be removed.
“The VAT rate will be increased up to 18 percent in January 2024 along with elimination of almost all VAT exemptions other than for products relating to health, education, and a few essential foods,” the budget speech said.
As of now, VAT is not applied on power and energy products—meaning on petrol, diesel and electricity.
When queried about the application of VAT on fuel and electricity with the proposed VAT exemption removal, Advisor to the Finance Ministry Deshal de Mel said it was not right for him to comment on it as the 2024 budget is yet to be passed in parliament, and pointed out that changes could occur at the committee stage of passing it.
He said this during a post-budget webinar organised by the Centre for Banking Studies, yesterday.
“Since the exemptions are only for education, health and food items, as mentioned in the budget, I believe VAT will have to be applied on power and energy from the beginning of next year, unless the government decides to make a change before passing the budget,” a tax expert told Mirror Business on the grounds of anonymity.
VAT is a consumption tax levied on goods and services ultimately paid by the end consumer. It is often considered a regressive tax because it tends to have a disproportionate impact on lower-income individuals and households.
According to the 2024 budget estimates, the government plans to raise Rs.2,235 billion from taxes on goods and services, substantially higher from the 2023 estimate of Rs.1,376 billion.