• No VAT reduction until alternative revenue streams are identified: Cabinet Spokesman  
• IMF agreements tie Govt.’s hands, preventing VAT relief for low-income households  
• Presidential promises of VAT relief clash with fiscal realities, international obligations  
• VAT hike to 18%, lowered thresholds continue to impact biz, households  

There will be no reduction of Value-Added Tax (VAT) until alternate revenue generation schemes are identified to meet the revenue targets imposed by the International Monetary Fund (IMF), according to the Cabinet Spokesman. 

Speaking to The Sunday Morning Business, Cabinet Spokesman and Minister of Health and Media Dr. Nalinda Jayatissa agreed that the application of VAT was fundamentally inappropriate due to its uniform application to all persons irrespective of their earning capacity and therefore had a disproportionate impact on low-income households. 

However, he claimed that the hands of the new Government were tied by the terms agreed with the IMF by the former Government and that therefore, the Government was unable to pursue a reduction of the current applicable VAT rates.

He further stated: “If former President Ranil Wickremesinghe hadn’t agreed to these terms with the IMF, we could have reduced VAT rates. However, there are certain revenue targets given by the IMF. Until we are able to achieve these revenue targets through alternative means, we have no choice but to continue with this.”

In the lead-up to the Presidential Election, then presidential candidate Anura Kumara Dissanayake claimed that steps would be taken to remove the VAT imposed on food, health services, and school supplies following his election victory.

Speaking at a public rally in Galle in August, the incumbent President stated: “We can recover our country’s economy. There is an 18% tax on food and we will reduce the VAT on it. 

“With the first Cabinet meeting held under our leadership we will remove VAT on food, health services, and education supplies. People cannot live under this type of pressure. We will provide them relief.” 

Following certification of the VAT (Amendment) Act No.16 of 2024 on 20 March by the then Speaker of Parliament, the standard VAT rate for any tax period, beginning from 1 January 2024, was increased to 18% from 15%. 

Moreover, the VAT registration threshold was reduced to Rs. 60 million from Rs. 80 million for a period of 12 months and to Rs. 15 million from Rs. 20 million per tax period, effective 1 January 2024.