Govt. mulls possible downward revision of VAT rate in 2Q24

State Revenue Unit Director K.K.I. Eranda and Finance State Minister Ranjith Siyambalapitiya at the special press conference on VAT this week
PIC BY PRADEEP DILRUCKSHANA

By Nishel Fernando  
The government this week said it is mulling on a possible downward revision of the Value Added Tax (VAT) rate in the second quarter of 2024. A relief is likely towards March-April this year. 
Addressing a special conference held at the Finance Ministry this week on the VAT, President’s Office State Revenue Unit Director K.K.I. Eranda outlined that the government’s strategy is to further lower the VAT registration threshold, to capture almost all businesses into the VAT base by 2027, while simultaneously containing leakages with enhanced compliance measures and public awareness. Despite the elevated cost of living, the government in the 2024 budget decided to increase the VAT rate to 18 percent, with effect from January 1, while eliminating the VAT exemptions on 100 odd items. 
However, Eranda stressed that the government still maintains the VAT exemptions on around 50 items covering health, education and several other essential food items, including rice. 

Eranda pointed out that many businesses that fall in the VAT threshold, with an annual turnover of Rs.80 million, have not registered for the VAT while some of these businesses collect the VAT from consumers, which has become part of their profits.
The VAT registrations dipped to around 8100 in 2020, after the VAT threshold was brought up to Rs.300 million in 2020, from the earlier Rs.15 million. Although the government reduced the threshold to Rs.80 million from October 2022, Eranda noted that the VAT registrations have only risen to around 13,000 at the end of 2023. 
“We cannot think there are only 13,000 businesses that have a turnover of Rs.80 million; so, many businesses are evading the VAT,” he added. 
In this context, he noted that the government has proposed to bring down the VAT threshold to Rs.60 million this year, while noting that there should not be a threshold for the VAT, as it is passed down to the consumer. Reducing the threshold would be done in consultation with the International Monetary Fund.