New Value-Added Tax Act to be introduced

A new Value-Added Tax (VAT) Act will be introduced consolidating the amendments introduced from the year 2002 to the year 2022, President Ranil Wickremesinghe said today.

Presenting the budget proposals for the fiscal year 2023, the Head of State said exemptions specified in the First Schedule to the VAT Act will be rationalized with effect from April 01, 2023.

Stressing that the government revenue needs to be increased, the president said the revenue saw a significant decline to 8.3% of GDP in 2021, which is one of the lowest in the world.

“In order to correct this position while rectifying the tax cuts introduced in late 2019, the government presented revenue measures in three occasions – on May 30, 2022, the interim budget on August 30, 2022 and the Inland Revenue Bill presented in October 2022. The revenue proposals mainly included changes to the income tax and Value Added Tax (VAT) while addressing tax Policy gaps and rationalizing tax concessions.”

Committed implementation of these tax reforms will help increase revenue in 2023 and beyond, enabling to move away from costly monetary financing (money printing) to cover government expenditure in the future, the president remarked.

The government is also committed that the tax policy measures are accompanied by improved efficiency in public spending and fighting corruption, he added.

Crude estimates suggest that revenue forgone due to the VAT exemptions granted to various sectors, including electricity, transport and fuel, is estimated to be more than 1% of the GDP.

“Hence, it is proposed to remove certain exemptions after review. Amendments to the VAT Act to remove certain exemptions will be made effective from 01 April 2023.”

Speaking further, the Head of State said proposed to impose a tax of Rs. 2.00 per Beedi stick, with the aim of regularizing the Beedi industry and deterring people from Beedi consumption.

In addition, other fees payable for obtaining of certificates and licenses will be increased, he added.