Hoteliers puzzled over amendments to VAT rate

Hoteliers yesterday urged the government to correct the error in recent amendments to the Value Added Tax (VAT) rate for services provided by them, noting that they would be liable for an additional cost of 15 percent on services and purchases as per the amendments. 

The Finance Ministry through an Extraordinary Gazette issued on May 21 reduced the VAT rate on services offered by hoteliers and tour operators to 5 percent from the earlier 15 percent. 
“By the government’s intention to grant a benefit to the tourism industry by reducing the VAT rate to 5 percent under Section 22(3), 3rd Provision to the VAT Act, the total input of 15 percent will be disallowed. 

“This will result in companies having to incur additional cost of 15 percent VAT on services and purchases,” The Hotels Association of Sri Lanka (THASL) stated. 

Hence, THASL requested the government to allow 15 percent VAT on purchases as an input tax for a period of one year until such time the travel bans are relaxed and industry returns to normalcy.

The VAT reduction was a part of the financial relief package the government introduced to support the revival of the tourism sector in the aftermath of Easter Sunday bombings.