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State Minister of Finance, Lakshman Yapa Abeywardena last week stated that the proposed hike in Value Added Tax (VAT) to 15% from the present 11%, effective from May 2, 2016, will not be imposed on electricity and medicines. He also noted that discussions are presently underway to not increase tax on water bills. The clarification by the Minister was made at the weekly cabinet briefing held on Wednesday amidst confusion after President Maithripala Sirisena dropped a bombshell early in the week.

Addressing a ceremony at Polonnaruwa to mark the Sinhala and Tamil New Year on Monday, the President said that although there were media reports the government was preparing to increase the Value Added Tax (VAT) on essential commodities, he would not allow additional burdens to be heaped on poor masses.

“If there are any officials or economic experts who recommend measures such as increasing VAT aggravating the suffering of people, I am not ready to listen to them; I will send them home,” the President said adding that the incumbent government was installed to alleviate the suffering of people and not to inflict suffering on them.

On April 12, the Finance Ministry which announced amendments to the VAT, Nation Building Tax (NBT) and Share Transaction Levy (STL) through a circular noted that the threshold for the registration for VAT shall be Rs.3 million per quarter or Rs.12 million per annum.

Other proposed changes

VAT

• Wholesale and retail trade (other than by a manufacturer or importer) shall be liable for VAT and the tax shall be charged only on liable supplies.

• The restriction on exempt supplies (deemed VAT) shall be removed. Threshold for the VAT liability of wholesale and retail trade shall be reduced to Rs.3 million per quarter or Rs.12 million per annum.

• Following supplies which are currently exempted shall be liable for VAT.

a) Supply of Telecommunication services,
b) Import or supply of telecom equipment or machinery, high tech equipment including copper cables for telecom industry,
c) The issue of licenses to local telecom operators by TRC
d) Supply of healthcare services
e) Supply of goods or services to any specified projects other than housing projects
(v) Amendments to the VAT Act shall be implemented with effect from 02.05.2016.

Nation Building Tax (NBT)

(i) NBT rate currently applicable should be remained unchanged at 2%.
(ii) Threshold for the registration for NBT should be Rs.3 million per quarter.
(iii) The present threshold of Rs.25 million per quarter should be reduced to Rs.3 million per quarter, except for any locally procured agricultural produce in the preparation for sale.
(iv) The present exemptions on the following articles or services should be removed.
a) Telecommunication service,
b) Supply of electricity,
c) Lubricants
d) Supply of goods or services to any specified projects other           than housing projects
(v) Amendments to the NBT Act shall be implemented with              effect from 02.05.2016.

Share Transaction Levy
Share Transaction Levy shall be re-imposed with effect from 01.04.2016 at the rate of 0.3 per cent from every buyer and seller, on the turnover of every share trading transaction, which is conducted through a Stock Exchange.