Despite the increase in Value Added Tax (VAT) to 18% from January 2024 onwards, a relief could be anticipated by April-May with the gradual improvement of the Government revenue, Saman Rathnapriya, Director General of Trade Unions to the President Ranil Wickremesinghe  said at the Conference on VAT at the Ministry of Finance premises yesterday (9).

Speaking at the conference Rathnapriya said: “We dislike the increasing VAT, but the countries have not developed without taxation. This 18% is not necessary to be imposed forever. It has been gradually fluctuating from time to time since its imposition in 2002.” 

According to the Budget 2024, the VAT rate is to increase up to 18% in January 2024 along with elimination of VAT exemptions other than for products relating to health, education, and a few essential foods. 

State Minister of Finance Ranjith Siyambalapitiya, in a recent press conference at President’s Media Division (PMD) said: “The VAT rate, previously at 15%, has been increased to 18%, and the VAT limit, previously set at Rs. 80 million, will now be decreased to Rs.60 million. Since the introduction of the VAT Act in 2001, all goods and services were initially subject to VAT, but subsequent tax amendment acts gradually exempted certain items. In the latest amendment, 97 out of 138 exempted goods and services have been re-added.”

State Minister Siyambalapitiya further said that the Government expects that the VAT revision will contribute an additional 2.07% to the state revenue as a percentage of the general gross domestic product (GDP), amounting to Rs. 645 billion. The Economic Research Division of the Central Bank of Sri Lanka (CBSL) has analysed that the increase in tax rates may lead to a 2.5% rise in inflation. 

However, the Central Bank and the Ministry of Finance express confidence that, with the reduction in the electricity bill, inflation can be brought back to 5% within two or three months, the State Minister of Finance reiterated at the Conference.