VAT delay causes huge losses to govt - Economist

By Lalin Fernandopulle

The government has to come up with reforms on Value Added Tax (VAT) soon to meet its revenue target for this year, according to several experts.

The revenue for this year has been revised to Rs. 1.87 trillion, an 8.2 percent less than the original target of Rs. 2.03 trillion. The government’s revenue last year was Rs. 1. 41 trillion.

An economist said the delay in implementing the revised VAT, which should have come into force on April 1, has caused substantial loss to the government.

However, policy makers should implement the revised VAT soon to minimize the loss and meet revenue targets and consolidate the Budget which is required by the International Monetary Fund to release its loan tranches.

Former Deputy Governor Central Bank, W.A. Wijewardane said the government which faces a huge problem with regard to funds, should soon set up the new VAT structure to boost its coffers and meet revenue targets for the year

He said while government revenue has been slow to come its expenditure is ballooning. “There’s no two words about increasing revenue through taxes. It would be in a difficult position if the revenue targets are not met and budget deficit is not met as required by the IMF to continue its program with the government.”

It has been suggested that while exempting the lower strata of business to expand the coverage of the VAT to achieve the set revenue target.

The Prime Minister and the Central Bank Governor stressed the need to consolidate the budget through tax reforms. “Tax reforms are vital for the government to redirect the budget from consumption to economic development and increase expenditure on education and healthcare,” Wijewardena said.

Former Ceylon Chamber of Commerce Chairman Chandra Jayaratne said the problem with VAT is the repeated failure of the policy makers in managing finances. “The February 2015 and the November budget for 2016 were not properly implemented. There is no macro-economic management in the country. All know that the focus on turnover tax was suddenly shifted towards VAT which is not what is wrong,” Jayaratne said. The Supreme Court suspended the increase of VAT from 11% to 15% last month following a petition challenging the tax hike. However, State Enterprise Development Deputy Minister, Eran Wickramaratne said last week that the revised VAT will be presented to parliament and will be implemented next month.