Govt. expects to raise Rs.100bn through revised VAT this year

Finance Minister Ravi Karunanayake (right) showing a letter from the Government Printer in his attempt to refute allegations by the Joint Opposition about the legality of the latest revised VAT Bill, as Treasury Secretary Dr. R. H. S. Samaratunga looks on
Pic by Pradeep Dilrukshana

By Chandeepa Wettasinghe
The government expects to raise as much as Rs.100 billion through the revised Value Added Tax (VAT) law this year, Finance Minister Ravi Karunanayake said yesterday, while shooting down allegations the Joint Opposition made against him for circumventing the due process again in his attempt to legislate the VAT Bill’s latest iteration.

“We’re expecting to collect even more,” Karunanayake said in response to a question by Mirror Business whether the Rs.100 billion revenue target from the revised VAT rates is still realistic given the time restriction for the year.

The claim could have some merit, given the large reductions of the VAT liability threshold, even though VAT will only be collected from VAT liable goods, compared to a blanket charge on the revenue in the past on all goods and services sold by a supplier liable for VAT. Karunanayake had this May set a Rs. 100 billion revenue target to be collected from raising the VAT rates from 11 percent to 15 percent.

However, against the then hopes of having the VAT in effect for 8 months of 2016, the Supreme Court in July had halted the rate hike due to a petition made by the Joint Opposition which claimed that the revised Bill had not followed the parliamentary standing orders of gaining parliamentary and Cabinet approval.

In August, the Supreme Court ruled that the process pursued by the government raising the tax rate was unconstitutional and was against the parliamentary standing orders. 

When the next draft of the revised VAT Bill was gazetted last week, the Joint Opposition said that the document was gazetted on September 9, even though Cabinet approval was given on September 13, and that it would go to courts again to stop it from being legislated.
However, Karunanayake refuted the allegation by providing a letter written by the Government Printer Gangani Liyanage, where she had stated the revised VAT Bill was published on the September 13 Extraordinary Gazette, which was a part of the September 9 Gazette.

The increased rates of the VAT Bill, if implemented, is likely to come into effect retrospectively for the two months from May to July as most suppliers had already collected increased rates from consumers.

Meanwhile, Karunanayake said that other forms of revenue had surpassed expectations this year, helping to reach the budget targets.

Cabinet decides to impose 15% VAT on cigarettes 

The government has decided to impose the proposed 15 percent VAT on cigarettes and increase the current production tax by Rs.5 for any size cigarette, it was revealed during the Cabinet media briefing yesterday.

The Cabinet of Ministers also has agreed to increase the cess on the import of beedi leaves by Rs.1000 to Rs.3000.

The revised VAT Bill is likely to be presented to parliament for approval in October.

The moves come in the wake of a survey finding that shows 15 percent of people between 18-69 years are engaged in smoking and about 30,000 die annually due to tobacco related diseases. 
It has been calculated that government spends about Rs.72 billion annually to treat such patients.
VAT was relegated into excise duty in 2014 on tobacco, liquor and several other products in an attempt to cut back on the plethora of taxes levied on these products. 

A re-imposition of VAT on cigarettes could thus create a scenario of ‘VAT on VAT’, as a VAT component is already present in excise duties. 

The current effective tax rate on cigarettes is around 81 percent. Additional taxes means the cigarette monopoly in the country, Ceylon Tobacco PLC (CTC) will have to raise the cigarette prices. 
CTC in 2015 paid over Rs.90 billion taxes to the government, and this year the tax payment is estimated at Rs.100 billion.