Sri Lanka cabinet approves VAT hike; threshold up

ECONOMYNEXT – Sri Lanka’s cabinet of minister’s has approved a hike to value added tax to 15 percent with a sharply higher threshold that will drop small businesses from the tax net, a finance ministry spokesman said.

The tax reforms will see a single rate of 15 percent for VAT and also health services being taxed, a service that is not taxed in many countries. Both sickness and death (funeral services) are either exempt or zero rated.

Britain, Sri Lanka’s former colonial master, had zero rated health services.

However some areas of health care such as dialysis and outpatients services is not expected to be taxed.

Sri Lanka has to raise tax revenues after salaries and subsides were sharply hiked in 2015, in one of worst budgets since 2004 ‘Rata Perata’ economic strategy. In 2015 money printing to finance the deficit, led to a collapse in the rupee, lowering the living standards of everyone, especially the poor.

In May 2016 government attempted to collect the value added tax without parliamentary consent in the style of a feudal ‘royal prerogative’, and even without cabinet approval, and opposition activists went to court in protest. Court ordered due process to be followed.

 In Sri Lanka taxes are hatched secretly and slammed on the people by midnight gazette especially since the 1970s. Prerogative taxation violates the basic ‘taxation by consent’ a basic principle of representative government, established from the Magna Carta.

The government recently raised the tax on diesel at midnight, showing that prerogative taxation is continuing. In democratic countries, prerogative taxation is outlawed by constitution.

Under proposed changes which the government attempted to implement without parliamentary consent, the VAT threshold would have been brought down to 12 million rupees a quarter, forcing small businesses to maintain accounts.

VAT also brings business into the income tax net raising so-called direct taxes, a favourite catch phrase of the elected ruling class. (Colombo/Sept12/2016)





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