Sri Lanka VAT cut, tobacco taxes paused by Parliament’s finance committee

ECONOMYNEXT – The Committee on Public Finance of Sri Lanka’s Parliament has deferred the approval of finance bills aimed at slashing value added tax and changing tobacco taxes, its chairman M A Sumanthiran said.

Public Finance Committee has asked for the economic justification for slashing value added tax from 15 to 8 percent when it met on February 05.

The cabinet of ministers had approved the tax cut, and the Department of Inland Revenue is implementing the tax cut, without parliamentary approval.

The taxes were slashed amid the parliament having approved a vote on account for the first five months. However some state salary hikes approved for this year has also been suspended in a bid to reduce the expanded budget deficit.

The bill to legalize the VAT cut was expected to be presented to parliament this week.

The cutting of VAT is generally considered a risky strategy some economists at a time when the economy is recovering from a currency collapse in 2018 and credit pressure is likely to build up.

The Committee on Public Finance has also queried changes to excise duties on tobacco. VAT was slashed for tobacco but excise taxes were hiked to recoup losses.

The public finance committee has asked for observations of the National Authority on Tobacco and Alcohol (NATA) on the taxes.

The committee will next meet on February 18.

Sri Lanka’s current parliament is expected to be dissolved at the end of March. (Colombo/Feb05/2020)

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