Sri Lanka’s business  community and  consumers   alike are eagerly awaiting the government’s pronouncements on the full list of non-essential goods, in light of the Prime Minister recently announcing that Value Added Taxes (VAT) will increase to 15% but will exclude essentials. According to Treasury Secretary, Dr. R H S Samarathunga, the legislation to give effect to the amendment to the legislation, which will in effect raise the prices of goods and services subject to VAT, is presently at the drafting stage at the Legal Draftsman’s Department.

“We are hoping to obtain parliamentary approval at least by the by the middle of next month (April) so that it can be implemented at the earliest,” Dr. Samarathunga told Nation in a recent interview.

The Budget 2016 announced by Finance Minister Ravi Karunanayake last November had proposed to introduce three VAT rates replacing the previous flat VAT rate of 11 per cent.  This was a zero rate on exported goods and the provision of services for consideration in foreign currency outside of Sri Lanka; a 12.5 percent rate on the services sector; and an eight percent rate on the manufacturing sector and on imported goods. In addition, the VAT registration threshold was proposed to be increased to Rs. 12 million. However with Prime Minister’s proposal in Parliament recently to now adopt a single rate of 15 per cent, the previous Budget 2016 proposals seem to have now been squashed.

“It seems that it is prudent that we maintain a single rate of 15 percent. We would remove the tax relief granted to telecommunication services, private education and private medical care,” the Prime Minister said in his special statement on March 8.
Analysts say that if the legislation is passed on in full to customers, the VAT rise from 11 per cent to 15 per cent, implies an increase of around 3.6% in the prices of the goods and services that are subject to VAT although if imposed on selected goods, the actual impact on consumer prices with full pass through effect would however be less than 3.6%.

If one was to go by the list of 13 essential goods that were granted concessions in the new government’s first interim Budget for the year 2015, the list included Sugar, Milk powder,  Wheat flour, Bread, Mung bean, Canned fish, Coriander, Chili powder, Sprat fish, Liquid Petroleum Gas, Turmeric and Maldive fish.