Finance Ministry says reviewing VAT exemptions

The government is in the midst of reviewing the Value Added Tax (VAT) exemptions granted to various products and services, in order to eliminate the unproductive tax exemptions, with a view to boost tax revenue by improving tax capacity and performance. “At this juncture, we are reviewing the VAT exemptions granted to various sectors, in order to remove unproductive tax exemptions,” Fiscal Policy Department Director General Dr. Kapila Senanayake said.

He was speaking at a tax seminar held at the Finance Ministry in Colombo yesterday.

The government increased the VAT rate to 15 percent, with effect from September 1, this year and removed the VAT exemption granted for condominium residential accommodations from January 1, next year.

Citing the World Bank data, Dr. Senanayake pointed out that there was a wide gap of around 6 percent of GDP between the VAT capacity and performance.

According to PwC Sri Lanka Chief Executive Officer Sujeewa Mudalige, the government could collect at least Rs.200 billion by removing the current VAT exemptions granted to various products and services.

Sri Lanka has granted VAT exemptions for a range of products and services, including locally produced dairy, electronic items, mobile phones, sea sand and unprocessed prawns.  JB Securities Limited Managing Director and Advocata Institute Chairman Murtaza Jafferjee opined that VAT exemptions not only deprive the state coffers but also certain VAT exemptions have led to distortions in the market.