Revised revisions and how VAT stands today

The Government has suspended all Value Added Tax (VAT) revisions introduced either by the 2016 Budget or by way of a subsequent Cabinet decision which was formally announced in April. This was after the Supreme Court issued an interim injunction preventing implementation of the planned VAT and NBT revision until the relevant legislation is passed in Parliament.

The VAT now stands at 11%, the rate that was approved by Parliament in 2015. All the exemptions that were introduced by the last VAT (Amendment) Act are still valid. This means VAT is no longer chargeable on health, education and telecom services. The wholesale and retail sectors are also exempt. However, there will be no refunds of taxes charged up to the date of the suspension, the Finance Ministry confirmed.

The interim injunction was issued on a fundamental rights case filed by former Minister Wimal Weerawansa stating that the revised VAT and NBT were illegal as they had not been approved by Parliament. The Government hurriedly placed the Bill on the Order Paper and was scheduled to take it up for debate this week.

However, this decision has now been reversed in view of a fresh challenge to the VAT Bill. UPFA Parliamentarian Sisira Jayakody has filed a special determination petition seeking a declaration that the Bill shall become law only through a two-thirds majority in Parliament and the approval of the people at a referendum.

Senior Counsel Kanisha Witharana, who is representing the petitioner, said that several clauses in the Bill are inconsistent with many sections of the Constitution. “We are challenging the retrospective effect of the Bill,” he told the Sunday Times.

Meanwhile, Dinesh Gunewardena, who leads the Joint Opposition in Parliament, said that the JO will not support the VAT Bill in its current form. “The Joint Opposition has opposed the Government deviating from the VAT proposed in the Budget that was presented in November,” he said.

“This will place more burdens on the average household in this country,” he continued. “Challenging the legality of the procedure is only one angle. We have explained our position to the Government. The Budget never anticipated these changes. If they want to revise it, it must come in the form of a mini-budget.”

“That is the correct method,” Mr. Gunewardena insisted. “Even the IMF would agree that a mini budget should come. The total revenue has changed, the conditions for repayment have changed and the conditions of expenditure have changed. If the Budget is to be revised, the sole authority is in Parliament, not in Cabinet.”

The Joint Opposition will consider supporting the VAT (Amendment) Bill if it sticks to the conditions that were announced in November. “The Government is in a serious revenue crisis but it wants to put the burden on the people rather than on the super rich,” he said.