The government has withdrawn its proposal to reduce VAT, SSCL threshold to Rs. 36 million

The government has decided against implementing a proposal that would have reduced the annual turnover threshold for Value Added Tax and the Social Security Contribution Levy from Rs. 60 million to Rs. 36 million.

The proposal was to come into effect on July 1 as part of the VAT (Amendment) Act that was passed without a vote in Parliament on Tuesday (June 23).

Deputy Minister of Economic Development Nishantha Jayaweera told Parliament that the necessary approvals, from the Cabinet and the Attorney General’s Department, had been received to remove the proposal.

Context

The VAT (Amendment) Act was formulated to expand Sri Lanka’s tax net to include international digital services and boost revenues under targets set by the International Monetary Fund (IMF).

One of the more contentious proposals was the reduction of the annual turnover threshold that would be liable to pay VAT and SSCL from Rs. 60 million to Rs. 36 million.

This would effectively bring small and medium enterprises (SMEs) that make a daily turnover of Rs. 100,000 liable into the 18% VAT and 2.5% SSCL tax bracket.

“The economic recovery was offset by unforeseen events out of our control such as Cyclone Ditwah and the Middle East war. They have negatively impacted businesses particularly SMEs who are facing considerable challenges,” Deputy Minister Jayaweera told Parliament, after stating that the proposal would be withdrawn.

The bill would have also imposed fines of up to Rs. 1 million and up to six months imprisonment for willful tax evasion and fraudulent refund claims.

It was estimated that around 10,000 SMEs would have been impacted if the proposal had come into effect.

Harsha’s response

Chairman of the Committee on Public Finance (CoPF) and opposition member of Parliament Dr. Harsha de Silva claimed that the government’s reversal was a win for the public.

“Expanding the tax base is right. But it must be equitable, not a system that squeezes the small trader while the powerful walk free,” he said in a social media post.

“Today they backed down. The threshold stays at Rs. 60 million. That's not their win. That's yours,” de Silva also said.