Despite the popular belief that the value added tax (VAT) imposed on supermarkets and wholesalers by Budget 2013, so far, traders have not passed the additional cost to the customers, a top official of one of the country’s leading supermarket chains said.

The official, who was talking to Mirror Business on grounds of anonymity, said that neither his company nor any other retailer had passed the impact to the customers.

“The customer can see that the list price of products has not changed. The impact of VAT is absorbed by us and I do not think anyone in the industry too has so far passed the impact of VAT to the consumer,” he noted.

Nevertheless, he added that they were negotiating with the suppliers to improve the margins.

Commenting on the calls by the retailers to reconsider the Budget proposal to charge VAT, as it would dent their top line, Treasury Secretary Dr. P.B. Jayasundera told a forum held recently that people who go shopping in supermarkets could afford the new VAT imposed.

“These are the people who can afford this. Based on the very basic economic theories I have learnt, a larger share of the VAT is borne by the ultimate customer and not the trader. The reason why they (the retailers) do not like the tax is because they do not like to come in to the VAT process,” he stressed. Budget 2013 imposed VAT for wholesale and retail businesses with a quarterly turnover not less than Rs.500 million, while those businesses less than an annual turnover of Rs.12 million were exempted of VAT, in order to broad base the VAT net, while providing an incentive for small scale businesses. Dr. Jayasundera further noted that 20 to 30 percent of the merchandize of those supermarkets was not liable for VAT and therefore, VAT is applicable for items which are processed. State-owned Lak Sathosa outlets are however VAT exempted.

Asked how the categorization of items liable for VAT and otherwise is possible by those businesses, J.P.D.R. Jayasekara, S-VAT Commissioner of the IRD explained that a list was provided to each business with the items listed under each category.

“Generally, ‘unprocessed items’ such as vegetable, meat and the likes are not liable for VAT, while the other processed merchandize is subject to VAT. Besides, drugs and ayurvedic items too are exempted,” Jayasekara said.

Meanwhile, the IRD re-emphasized the fact that those businesses with an annual turnover less than Rs.12 million do not need to charge VAT and Nation Building Tax (NBT) from the customers as they were VAT exempted. For this purpose, the department has sent more than 11,000 letters to those VAT and NBT registered businesses conveying this message. (DK)