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| Sunday, 30 June 2002 |
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Trade calls for indepth study of VAT, relief for consumers Frontline members of major trade chambers on Thursday night welcomed the Government's decision to enforce the Value Added Tax (VAT) at a later date consequent to a legal impediment.
Trade representatives told the Sunday Observer Business that this temporary postponement will enable them to make an indepth study of the implications of the new tax regime which seeks to replace the Goods and Services Tax (GST) and the National Security Levy (NSL). Chairman Ceylon Chamber of Commerce Chandra Jayaratne said: "It is good that it is postponed. It should be reviewed and the whole value chain should be brought under VAT before implementation". He said the current system should have been retained for this year. VAT could have been introduced along with the necessary amendments to the Constitution next year. Chairman National Chamber of Commerce of Sri Lanka Chandra Embuldeniya said: "I think postponing the implementation by one month may not be sufficient because of the increase in the cost of living." He said: "I do not think it is wise to tell the people about VAT without providing some relief. Therefore, allow the cost of living and inflation to be stabilised at one digit and implement VAT. Until then, continue with the GST and remove or reduce the NSL to two or three per cent." Asoka De Z. Gunasekera, Chairman Ceylon National Chamber of Industries
said the delay in implementation will enable the Department of Inland
Revenue to assess and evaluate the effects on commerce and industries. It
should be implemented only after such an assessment and evaluation.
At present, small and medium firms are very often not registered for GST. NSL was not charged when obtaining leasing services. Now it is proposed that VAT will be charged at 20 per cent on the leasing sector in place of the 12.5 per cent GST. Therefore they will be burdened with an additional 7.5 per cent cost. Aloy R. Jayawardena, President, Sri Lanka Chamber of Small Industry said: "We are quite pleased that VAT was postponed, for everyone is going through immense difficulties." He said that they are planning to demand the government to first create stability in fuel prices before VAT is implemented so that industries using fuel can control their prices. "We should be more concerned about the poor man rather than industries," he said. There is no system to check the traders. Therefore, they will jack up prices. As it is, people are finding it difficult and introducing VAT will make the problems more serious. Speaking about industries, he said that industries will have to take it up, but they will find it difficult to complete with the cheap imports. VAT highlights The introduction of two positive rates - 10 per cent and 20 per cent. In addition there will be zero ratings and exemptions. The same threshold applicable to GST, ie Rs 500,000 per quarter or Rs 1.8 million per annum, will be applicable to VAT as well. The lower band of 10 per cent will apply to essential goods and services while all other goods and services will be charged at the standard rate of 20 per cent. Local buying and selling is not liable for VAT. Goods in Customs bonded warehouses are exempt while fabric, fibre, yarn, grey cloth, chemicals and dyes imported by BOI fabric manufacturers for export are excluded from charging. Value added Tax (VAT) introduced by the maiden budget of the United National Front Government was initially scheduled to abolish Goods and Services Tax (GST) and National Security Levy (NSL) from June 1. But to streamline operations it was decided to advance the date to July 1. But due to a court case filed by a citizens group, the implementation of VAT has been postponed by one month to August 1. GST which was introduced on April 1, 1998 at a standard rate of 12.5 per cent was applicable to all goods and services. Exports and services relating to exports were zero-rated while certain activities and items were exempted. Regulatory Authority Finance Minister K.N.Choksy told the Sunday Observer that the Cabinet Economic Sub Committee meeting on Tuesday presided by Prime Minister Ranil Wickremesinghe decided to set up a multi-sector regulatory authority which will monitor prices to ensure a fair deal to the public. The Ceylon Electricity Board and the Ceylon Petroleum Corporation will be brought under the aegis of this authority. The meeting was attended by Ministers K.N.Choksy, G.L.Peiris, Milinda Moragoda, Ravi Karunanayake and Bandula Gunawardane. The Minister also said that the Finance Minister and the Minister of Trade will initiate discussions with trade chambers to ensure that the reduction in prices will be passed on to the consumer. In addition, we will also embark upon a publicity programme to make consumers aware of the reduction of prices so that they themselves can demand the benefits, Minister Choksy said. He said that VAT will by and large benefit the consumer as medical equipment, agricultural equipment, capital goods necessary for small and medium scale industries, motorcycles, push cycles and tools used in the construction industry will all be charged at the lower 10 per cent rate. At present, electricity bills are charged GST at 12.5 per cent but under VAT it will come under the 10 per cent band, giving the consumer a 2.5 per cent tax relief. Former Minister of Mahaweli Development and General Secretary of the Sri Lanka Freedom Party Maithreepala Sirisena said that the main aim of the Government in introducing VAT is to increase tax revenue. He said that the GST did not bring the expected revenue to the Government coffers. Instead of increasing the GST, this Government has introduced a new tax system with high rates. He said that the PA studied GST for over two years before introducing it. But this Government has not studied the consequences of VAT. "The new tax system will definitely increase the cost of living by seven per cent according to a study," Mr.Sirisena said. The VAT will further contribute to the deterioration of the economy. We are against the VAT, he added. Goods and Services Exempted Goods * Unprocessed agricultural products other than potatoes, onions and
chilies
* Electricity more than 30KWH per month Goods * Cinema films |
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This follows the lawsuit filed against the proposed VAT Bill by a group
of citizens in the Supreme Court. Originally the second reading of the
Draft Bill was scheduled to be taken up in Parliament on July 9.
