- Aim to boost tax revenue and prevent undervaluation of imports
- Temporary VAT numbers to be suspended by end of 2024
Sri Lanka will amend its Value Added Tax (VAT) Act to phase out temporary VAT registration for importers by the end of year 2024, distinguishing between those who import for personal use and those who import for commercial purposes, to avoid loss of tax revenue, a Parliamentary report said.
According to the Third Report by the Committee on Ways and Means, the Finance Ministry will amend the VAT Act to suspend the registration of temporary VAT numbers to avoid the huge tax revenue due to the undervaluation of imports.
It was revealed that about 65% of importers bringing in essential food items possess temporary VAT registration or fall under the casual stream of 2525.
Regarding the importation of big onions in 2023, 93% of importers were part of the 2525 stream and traders falling under the 2525 stream possess temporary VAT registration valid for three months.
In contrast, commercial traders in the 7000 stream hold permanent VAT numbers with the Inland Revenue Department (IRD) which maintains VAT files for them and are required to disclose their income to the IRD.
The Finance Ministry said that the suspension of registration of temporary VAT is contradictory with Section 11 of the VAT Act, No. 14 of 2002, as “every person who is willing to import goods into Sri Lanka, shall inform and obtain an identification number from the Commissioner General of Inland Revenue not later than fourteen days before the clearing of such goods.”
IRD has appointed a new committee to coordinate with Sri Lanka Customs including the responsibility of addressing the issues related to the registration of temporary VAT, where required legislation changes in the VAT Act that are required to streamline the process have been communicated to the Department of Fiscal Policy.
In July 2023, Sri Lanka Customs said that temporary VAT holders in Sri Lanka have increased from 14% in 2016 to 31% by 2023.