Govt to remove 97 items from VAT-exempt list

Finance State Minister Ranjith Siyambalapitiya says Value-Added Tax (VAT) would be imposed on 97 out of the 138 goods that were previously freed from the tax, in a bid to boost state revenue.

Commencing debate on VAT amendments in Parliament this morning (Dec.10), the lawmaker said short message service (SMS) in fixed telephone networks will also be subjected to VAT, given the increased number of text messages sent.

However, medicines, equipment used by disabled persons, rice flour, wheat flour, vegetables, fruits, liquid milk, and the ‘Suwaseriya’ ambulance service will not be subjected to VAT, the state minister assured.

Speaking further, Siyambalapitiya said the government has observed an increase in its revenue after revising the tax policies. By boosting the revenue, the government aims to increase its reserves to at least USD 5-6 billion from the current USD 3.8 billion. “When that happens, [Sri Lankan] Rupee will appreciate and prices of goods will go down permanently.”

The parliamentary debate on the Second Reading of the VAT (Amendment) Bill and Finance Bill commenced earlier this morning (Dec.10).

The Cabinet of Ministers in October gave the nod to increase the VAT from 15% to 18% starting January 01, 2024.

In addition, some of the new tax proposals are also expected to be implemented effective from January 01, 2024, in order to enable the realization of tax revenue and primary balance targets as agreed with the International Monetary Fund (IMF).

The government took the decision after observing that the tax collection targets agreed with the IMF are yet to be accomplished.

Earlier, the government mentioned that state tax revenue of the first nine months of 2023 went up by 51% compared to the corresponding period in 2022 after various tax-based increases and developmental tax policy proposals were implemented from June last year for the state financial stability based on the income, to ensure loan sustainability.

Meanwhile, the Ceylon Chamber of Commerce, raising concerns about the proposed increase of the VAT to 18%, has cautioned that the move could lead to a further decline in consumption.