• Mentions medical equipment, ambulances, high-protein agro foods for children, agri. items, approves VAT (Amendment) Bill & Social Security Contribution Levy (Amendment) Bill

The Committee on Public Finance (COPF) had recommended to the Ministry of Finance to reconsider Value Added Tax (VAT) exemptions for medical equipment, ambulances, high-protein agro foods for children, and agricultural items, which had not been considered by the ministry.

The COPF, which previously considered the VAT (Amendment) Bill that removed all VAT exemptions back in November of last year (2023), inquired as to why the ministry has not adopted the recommendations made by the COPF regarding the VAT (Amendment) Bill. 

The aforementioned discussion took place on Tuesday (20) at the COPF Chaired by Dr. Harsha de Silva.

Furthermore, the COPF questioned officials as to why they keep delaying the implementation of VAT on foreign digital and software providers, thereby creating an unequal playing field for domestic digital and software providers. Even local travel booking agents are subjected to VAT while websites such as Booking.com are exempted. The COPF pressed the officials on why they are delaying this, but the officials stated that they require a new law, which is set to come into effect in April of next year (2025). The COPF further pushed the officials to find a mechanism to collect due taxes and create an equal playing field until they draft a new VAT Bill.

Additionally, the COPF deliberated on the Social Security Contribution Levy (Amendment) Bill. This Amendment to the Act, which lowers the turnover threshold of registration for the Social Security Contribution Levy from Rs. 120 million to Rs. 60 million per annum, effective from 1 January of this year, was approved by the COPF. Dr. de Silva raised concerns regarding the necessity of maintaining two separate tax structures, citing the inherent inefficiencies and administrative burdens involved. He suggested consolidating these taxes under the VAT, which would result in an average effective rate of 22% when combined with the Social Security Contribution Levy. In response, the ministry clarified that their objective was to meet revenue targets and that they intend to use this approach until they can transition to a more streamlined tax system that captures all taxpayers more effectively.

Furthermore, the COPF also queried the officials about the progress of recovering the lost revenue resulting from the initial ‘sugar scam’, as highlighted in the report by the Auditor General. Officials contended that it should not be classified as a tax loss, but rather as tax foregone due to the reduction of the special commodity levy from Rs. 50 to Cents 25. Despite this explanation, the committee pressed the officials for data on certain companies that had disproportionately profited from this tax adjustment, amounting to Rs. 1.4 billion from six companies, with an additional six companies yet to be investigated. Dr. de Silva questioned why the Government could not recover the remaining foregone tax, especially while imposing significant tax increases such as on Pay-As-You-Earn and VAT for the average Sri Lankan. Officials explained that they could only recoup 30% of the undue gains through corporate tax, leaving the remaining 70% uncollectable within the current tax framework. Consequently, the COPF urged the officials to explore avenues for collecting all foregone tax revenue or to propose new legislation to address such situations in the future and to prevent their recurrence. 

While both the VAT (Amendment) Bill and the Social Security Contribution Levy were approved by the COPF, Chairman Dr. de Silva dissented, citing the aforementioned concerns.