- BOI, Non-BOI exemption to be discontinued in future
Sri Lanka is expecting to recover at least Rs. 200 billion in 2024 from the removal of exemptions from the Value Added TaxI(VAT), a Finance Ministry official said.
Speaking before the Committee on Ways and Means on Wednesday (5), Tax Policy Adviser to the Treasury Thanuja Perera said that the overall revenue loss to the government due to tax exemptions provided for VAT was 1.2% of GDP while it expects to recover at least Rs. 200 billion in 2024.
According to the tax expenditure statement released by the Finance Ministry, exemptions given by the Inland Revenue Department(IRD) have been separated into two categories such as Board of Investments(BOI) exemptions and Non-BOI exemptions.
The report released at the end of 31 March, an overall VAT exemption of Rs. 554 billion has been provided in the year 2022/23 while the non BOI exemptions amount to Rs. 447 billion.
Perera said that since most of the exemptions are now removed by the Government, the exemptions given to BOI and Non BOI companies will be discontinued in the future
She added that most of the VAT exemptions were given to the IT sector through the non BOI category.
Accordingly, VAT exemptions given to agriculture, apparel, knowledge services, manufacture, infrastructure, and tourism were removed from 1 January.
However, VAT exemptions given to pharmaceutical and electricity sectors still remain.
On the VAT exemption recovery calculations, an IRD official revealed that the actual recovery will be below the revenue loss amount as the calculations were made based on assumptions.
For example, he said that if a VAT liable person does a business, his tax expenditure is calculated applying the standard rate and if the person is liable he will claim an input, however, he added that the IRD has no method of measuring the input claimed as the person can buy from VAT registered or VAT unregistered supplier.
Moreover, Perera said that since there are assumptions in the calculations in applying the tax rates, the entire amount will not be recovered but at least Rs. 200 billion can be recovered in 2024.