Everything You Need To Know About The Increase In VAT

Rukshana Rizwie
Rukshana Rizwie

Contributor

On May 2, Sri Lanka raised its headline rate of value-added tax (VAT) from 11% to 15% to shore up the nation’s finances in an attempt to reduce government deficit, which has been hit by increased levels of borrowing, falling oil prices, and international economic turmoil.

Based on the stats in 2015, the Government owed Rs. 9.5 trillion ($65.6 billion) or 74.9% of GDP. That’s a lot of money.

What Is VAT?

VAT is an indirect tax on the consumption of goods and services in the economy. Revenue is raised for the Government by requiring certain businesses to register and to charge VAT on the taxable supplies of goods and services.

Why Is The Government Charging VAT Now?

The State Minister of Finance says that indirect taxes are the only way to boost government revenue. Image credit YouTube/BOI Sri Lanka
The State Minister of Finance says that indirect taxes are the only way to boost government revenue. Image credit YouTube/BOI Sri Lanka

State Minister of Finance, Lakshman Yapa Abeywardena, says that government revenue was diminishing because of global trends such as decline in demand for tea and rubber, and a sharp depreciation of the rupee over the years. The only way to increase government revenue is to adhere to an indirect tax system.

According to Anushka Wijesinha, chief economist at the Ceylon Chamber of Commerce, one of the primary reasons behind the recent VAT hike, is because we have delayed tax and spending reforms for far too long.

What Did You Just Pay VAT For?

VAT breakdown.
VAT breakdown.

Wijesinha, speaking to Roar, explained that there has been a lot of emphasis on the VAT increase, but few questions on how this tax money would be utilised.

“Taxation and government spending are two sides of the same coin,” he said. “The government needs to raise revenues because our public spending exceeds public revenue. In all fairness, citizens now need to be more vocal and ask where and how this money is going to be spent.”

Water Bills

The Chairman of the National Water Supply and Drainage Board, Eng. K.A. Ansar, told Roar that the increase in VAT on water bills was marginal. The increment, which comes into effect from this month, would show an increase in 4%, he said. “If your bill was Rs.111 then your new bill would be Rs.115,” he explained.

Bottled Water

Bottled water is among the many products you are now paying extra money for. Image credit banthebottle.net
Bottled water is among the many products you are now paying extra money for. Image credit banthebottle.net

We also found that the price of bottled water was hiked up. A 500 ml bottle of water which cost Rs. 30 now costs Rs. 50.

Bus Fares

The Lanka Private Bus Owners’ Association said the annual increase in bus fares was due in July, with the fares going up by 8%. The Association noted that there wouldn’t be an increase in fares till then.

Telecom Services And Bills

The National Movement for Consumer Rights Protection said that since the Government increased VAT to 15%, service providers would charge up to 19.53% on calls. Accordingly, Nation Building Tax is 2.08%, Telecommunication levy 26.04%, and VAT at 19.53%, while other government levies tally to 2.08%. For voice calls, SMS and Value Added Services, a customer may pay, regardless of the operator, up to 49.73% more than before.

Where data is concerned, Dialog Axiata confirmed that they will be charging 31.77% more. This includes 2.08% for Nation Building Tax, 10.42% for Telecommunication levy, 17.19% for VAT and 2.08% for other levies. This amount may vary for other telecommunication providers.

Private Medical Services

Expect to pay 15% taxes on channeling services at private hospitals. Image credit waterloohealth.co.uk
Expect to pay 15% taxes on channeling services at private hospitals. Image credit waterloohealth.co.uk

The VAT is enforced at 15% on channeling services at private hospitals as well as for private medical services, but it does not affect purchase of medicines. The private doctor channeling services are however capped at Rs. 2,000 so if you noticed an unusual increase, ask the hospital for a breakdown of the costs.

What Items Are Exempted From The VAT Increase?

The Finance Ministry released a list of goods and services which will be exempted from the VAT, and this includes rice, wheat flour, bread, milk powder, infant milk, mobile phones, dairy products and all fuel types, including kerosene.

Why The Fuss Over The Rate Hike?

The National Freedom Front (NFF) led by Wimal Weerawansa filed a fundamental rights petition in the Supreme Court seeking an injunction on the implementation of the VAT. The petitioner had argued that the VAT increase had not been introduced legally, citing that tax reforms need Parliament vote and cabinet sanction.

What next?

Anushka Wijesinha argues that if citizens were content with the delivery of government services, the whole issue of VAT being raised would not have even been a talking point. Ideally, with more money going into the Government, families should have to spend less on things they care about, like education, transport, retirement, or health.

“While there is no doubt that taxes help fund important services, the real issue is the amount of taxes that the Government takes compared to what we citizens get in return,” he said. “If you look at the health sector alone, you will find that there is plenty of room for improvements. We don’t get the same level of return for taxes on health care.”

There are several areas such as these where we Sri Lankans feel shortchanged. But what are we doing about it?

Featured image courtesy nation.lk

 

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