A. Rochelle P. Ariyawansa
Attorney-at-Law, Visiting Lecturer of NSBM Green University
LL.M in Commercial Law, University of Colombo
LL. B (Honors), University of Jaffna
Diploma in Taxation, Diploma in Shipping Law and Practice
Diploma in Commercial Arbitration
The domestic tax system controls the financial stability of a State. The income and expenditure generated are the basic forces of an economy however the revenue generated would be the factor creating sustainability. Value Added Tax (hereinafter referred to as VAT) is a type of consumption tax that is placed on a product whenever value is added at a stage of production and at final sale. The applicable statute being the Value Added Tax Act No. 14 of 2002 has been amended a number of times. Meanwhile Sri Lanka’s VAT was increased to 18% from January 2024 onwards. This along with a reduction of the VAT threshold to Rs. 60 million, and the removal of VAT exemptions from 97 items out of 138 goods, is predicted to increase inflation by 2.5% according to economic experts.
However, the actual question is, will those amendments be productive in stabilizing the crippled economy of the island? On the other hand, in the eyes of revenue the indirect tax base is very significant. In advanced income States the proportion of indirect tax is higher than the proportion of direct tax. But in Sri Lanka direct tax plays a key role. However irrespective of this factor, VAT being the most debated tax due to its nature and coerciveness with the public; undeniably the VAT legislation and the amendments absorb January 2024 everyone’s attention. It is essential to peruse the Hansard in connection with the passing of the VAT Act and the most recent amendment bill in order to understand legislative intent. Furthermore, it is important to support the poor to cope with the VAT hike at least through targeted initiatives that cater to the most vulnerable groups. Given the circumstances the writer proposes to conduct qualitative research and analyse the gravity of the latest amendments and their ability to combat the economic crisis in Sri Lanka with a special focus on sustainable economic development with a comparative focus on the progressive indirect tax imposition in South Africa which has a destination-based indirect tax system.
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