Tax experts shed light on upcoming Special GST on selected sectors

• SGST is to be a composite tax in lieu of all other taxes on these sectors

Clearing some ambiguities surrounding the enforcement of the Special Goods and Services Tax (SGST), a government official said the proposed tax would only apply to identified sectors and would come as a composite tax in place of the multiple taxes such as Excise duty and the Value Added Tax and other levies. 

However, the rate of tax, if that is going to be a single rate across the designated sectors, and who is going to be the collecting authority, are some of the areas which require clarity from authorities. 

“We wanted to composite the taxes on liquor, tobacco, betting, gaming and telecom industries specially, and the motor vehicles,” said Priyanka Dissabandara, Tax Advisor to the Ministry of Finance explaining the rationale behind the SGST. 

Although the proposal for the SGST came in the budget presented last year, it wasn’t enforced during 2021 despite the drafting of regulations.

“The Act is already drafted so it will be implemented with effect from January 1, 2022, hopefully”, Dissabandara added speaking at a recently held post budget forum. 

At present, the identified sectors are taxed by different authorities, with multiple taxes at different rates. 
For instance, the alcohol and cigarette industries are taxed via the 8 percent Value Added Tax (VAT) and the Excise duty, at rates applicable for specific items. 

Meanwhile, telecom services are taxed at 8 percent VAT, 11.25 percent of Telecommunications Levy and the 2 percent cess.  Meanwhile, betting and gaming is taxed at 8 percent VAT or levy on gross collection at 10 percent plus and an annual levy. Motor vehicles are taxed via Excise duty charged at various rates. 

Hence, the purpose of the SGST, according to Nisthar Sulaiman, Partner Tax at Earnst & Young is to introduce an online managed composite tax in lieu of the various other taxes applied at present and to relieve the various government bodies of their task of collecting taxes by appointing a single tax collection authority. 

“The intention of the government is to relieve these bodies which are collecting the various taxes and allow them to do regulation and have one authority to collect the tax,” said Sulaiman speaking at a webinar organised by the Institute of Certified Management Accountants of Sri Lanka last week. 

Underscoring this, Dissabandara said the SGST is “actually a conversion from the Excise duty to the SGST. 

So, it will be the same tax but a slight difference will be there”, in relation to the amount of tax revenue collected.  While there are early indications that different SGST tax rates would apply to different industries, Sulaiman asked whether the SGST would incorporate the VAT and if so would there be an input credit mechanism available to avoid a potential cascading effect.