The new Value Added Tax (VAT) Amendment Bill which would introduce an Equitable Taxation system under the norm of tax fundamentals is scheduled to be debated and passed in parliament Wednesday ( 26).

The VAT system has been simplified under the new Amended Bill by making it transparent and removing all existing hidden taxes said the Minister of Finance Ravi Karunanayake.

Value Added Tax or VAT was introduced to Sri Lankan tax system in 2002.  It was 10% at the initial stages and was charged only for goods and services.  However, VAT was increased from time to time and, it was 20% in 2006. VAT was imposed on whole sale and retail goods as well for the first time under the previous regime in 2013.

At that time, in addition to 12% VAT there were hidden charges added to the daily turnover exceeded 1.4 million rupees by 2014. Accordingly, though the VAT was charged only for several goods such as perfumes, biscuits, soap and processed foods, the traders were compelled to pay VAT for the entire daily turnover on the basis of 12 % after having accounted for 25 % excepted from the total turnover. 

Consequent to this, shop owners were compelled to pay not only for VAT liable goods but for VAT exempted goods as well. This was against the taxation principles and a distortion of the tax system.  The charge of VAT on non-taxable goods violates the globally recognized tax fundamentals.