Supreme Court suspends VAT, NBT increases

The revision of the Value Added Tax ( VAT) and the Nation Building Tax (NBT) without the approval of Parliament was in violation of the Constitution taking away the control of Parliament over public finance, noted the Supreme Court suspending the tax revisions dated May 2.

The court held that notice of the respondents to tax payers and general public with regard to tax revisions were ‘ultra vires’ and had no legal power or authority.

The Bench of Supreme Court Judges consisting of Chief Justice K. Sri Pavan, Justice Buvaneka Aluvihare and Justice Prasanna Jayawardena issued an interim relief as sought by five petitioners suspending the operation of the VAT and NBT revisions done by way of notices by the Finance Minister and the Commissioner General of Inland Revenue from May 2.

The order will be valid until the Bill titled Value Added Tax (Amendment) Bill is passed by Parliament or until the conclusion of the instant cases in court.

The order would suspend the revised tax rates, thresholds and exemptions pertaining to VAT and NBT. The Court noted that the revisions made were illegal since they were violative of Article 148 of the Constitution which deals with the control of Parliament over public finance. The five rights applications challenged the tax revisions on the basis that those revisions were illegal since they were not approved by Parliament.

The Court decided that there is a prima facie case for the petitioners and decided to fully inquire into the five rights pleas on June 22.

The five petitioners - National Freedom Front leader, Parliamentarian Wimal We e r awansa, Ven. Maduruoya Dharmasiri Thera, Ven. Bengamuge Nalaka Thera, the Centre for Policy Alternatives and Sivapathasunderam Sivakumar - cited Minister Ravi Karunanayake, Treasury Secretary R.H.S. Samarathunga, Inland Revenue Commissioner General Kalyani Dahanayake and the Attorney General as respondents.

The petitioners stated that the VAT rate was increased to 15% from 12% and the threshold for registration for VAT reduced to Rs. 3 million per quarter. The wholesale and retail trade were made liable for VAT and the threshold for liability was reduced to Rs. 3 million per quarter. Currently exempted supplies such as supply of tele- communication services, import or supply of telecom equipment or machinery, high tech equipment including copper cables for the telecom industry and the issue of licences to local telecom operators by TRC are made liable for VAT. The supply of healthcare services, supply of goods or services to any specified projects other than housing projects were also made liable for VAT, stated the petitioners.

Although the current rate applicable for NBT remained unchanged at 2%, the threshold for registration for NBT was reduced from Rs. 25 million per quarter to Rs. 3 million, except for any locally procured agricultural produce. The present exemption on the telecommunication service, the supply of electricity and the sale of lubricants were also removed.

The petitioners argued that the amendments were not approved by Parliament and were illegal, ultra vires the powers of the respondents and violative of the rights of the petitioners.

They sought an interim order suspending the operation and implementation of the notice bearing the title “Notice to the Tax Payers-Value Added Tax (VAT) and ( NBT)" issued on the instruction of the Finance Minister and by the Commissioner General of Inland Revenue and another