Sri Lanka struggles with tax confusion after court shock

ECONOMYNEXT – Sri Lankan businesses can only charge value added tax and nation building tax at rates that prevailed before May 02, until an amendment is passed in parliament, Finance Minister Ravi Karunanayake said, after courts suspended a tax hike today.

Value added tax was raised from May 02 to 15 percent from 11 percent without approval from parliament.

Sri Lanka’s Supreme Court in a landmark decision suspended the taxes in giving interim relief to an opposition legislator.

Karunanayake said the court order applied until the parliament passed the taxes or until the case was over. It is fixed for argument in December.

Last week legislation was introduced in parliament to change the law, but it will only be debated in the third week of June.

Prime Minister Ranil Wickremesinghe said in a statement that he expected the laws to be passed before the end of the month as the administration had the majority and the tax will be effective from May 02.

Finance Minister Ravi Karunanayake told reporters that businesses cannot charge the new taxes until the law is passed and there will be a few days gap from June 11 where the old taxes will be applicable.

"Let’s see if businesses cut the price from tomorrow," Karunanayake said.

Under Sri Lanka’s bizarre value added tax law – probably unique in the world – individuals are not issued VAT invoices and prices are displayed plus VAT and consumers have no way of identifying items on which vat are charged or not charged.

A senior Treasury official said an amendment would be moved at the committee stage of the debate parliament (third reading) of the bill to give effect to the move.

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As it now stands taxes collected from May 02 to June 11 will be remitted to the government with retrospective legal effect coming for the collections. (Colombo/July11/2016)
 

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