Tax reforms need parliamentary sanction - Inland Revenue Department

by Rukshana Rizwie

An increase in the Value Added Tax (VAT) from 11 to 15 percent this week, cannot be implemented through a newspaper advertisement or a circular, because tax reforms need to be sanctioned by a Parliamentary vote and gazetted, officials at the Inland Revenue Department told the Sunday Observer.

A senior official at the IRD who wished to remain anonymous, said the change in tax rates in certain sectors, cannot be amended and implemented through a circular without amending the relevant Act.

We spoke to Senior Deputy Commissioner General of Tax Policy M.G. Somachandra who echoed similar sentiments, saying that many private entities and individuals have been calling the IRD for clarifications.

"We are aware that healthcare services are exempted but we've been asked by private hospitals as to whether they should tax meals provided to in-patients," he said. "The answer is yes, but the enforcement of this is far more complex,"he said.

The Ministry of Finance made VAT amendments from 11 to 15percent, beginning May 2. The threshold for the registration of VAT is stipulated at Rs.3 million per quarter or Rs.12 million per annum.

A spokesman for the Department of Fiscal Policy at the Ministry of Finance and Planning said the hike in VAT was merely an amendment to the Act.

"The document is with the legal draftsman who will submit it to Parliament. When the Minister presented the proposal in Parliament, it was mentioned that the amendment would come into effect from May 2."

When asked whether it would be taken up for debate, the official said if it was called for debate, it would certainly be taken up. Meanwhile, National Freedom Front leader Wimal Weerawansa told Parliament that that he would take legal action, against what he termed the illegal increase of VAT by the government.

He said the government cannot increase taxes by gazette notification or a circular. Changes have to be approved by Parliament.