Sri Lanka Inland Revenue has issued a notice to taxpayers on the implementation of changes to the Value Added Tax (VAT) Act as amended by the Value Added Tax (Amendment) Act, No. 9 of 2021. As previously reported, the amendment Act was published in the Official Gazette on 13 May 2021 and includes formal amendments for the implementation of measures that were already generally applied in practice.
Implementation of Changes to the Value Added Tax (VAT) Act as amended by the Value Added Tax (Amendment) Act, No. 9 of 2021
Value Added Tax Act, No. 14 of 2002 (VAT Act) is amended by the Value Added Tax (Amendment) Act, No. 9 of 2021 as certified by the Speaker on May 13, 2021. The amendments are operative from the date of certification of the amendment Act unless different dates of operation are specifically stated in the respective provisions.
According to the Amendment Act, the significant changes are set out below.
1. Revision of VAT Rate
i. Standard Rate
VAT rate on import and / or supply of goods or supply of services other than financial services has been revised to 8% from 15% with effect from December 01, 2019. Further, different rates of VAT on the,
are also revised to eight (8%) per centum with effect from December 01, 2019, by rescinding the respective Gazette Notifications by the Extraordinary Gazette Notification No. 2151/52, dated November 29, 2019, published under section 2A of the VAT Act.
ii. Zero Rate
supply of services by a hotel, guest house, restaurant or other similar businesses providing similar services, registered with the Sri Lanka Tourism Development Authority, if not less than sixty per centum (60%) of the total value of the inputs are sourced from local supplies/sources - Zero per centum (0%) with effect from December 01, 2019.
2. Inward Remittance for exports of goods or services
Receipt of inward remittance for exports of goods or services is made mandatory in order to make refund on the input VAT paid on materials used and services consumed in such exports.
Accordingly, payment in respect of the export of goods or services should be received in foreign currency through a bank in Sri Lanka, within a period of six months from the end of the taxable period of which such export of goods or services has taken place, in order to qualify such export/supply for zero rating ec. 7(1)(a), (b) & (c)]
However, if the export proceeds are not received within such period of six months, while the goods or services are exported;
(Effective from May 13, 2021)
3. Registration Threshold
i. Increase of Registration Threshold With effect from January 1, 2020, value of taxable supplies for the purpose of registration for VAT by any person carrying on a taxable activity including any person who engages in wholesale and retail trade has been increased to Rs. 75 million per quarter or Rs. 300 million per annum from Rs. 3 million per quarter or Rs. 12 million per annum ec 10(1)(vi)].
ii. Removal of special calculation of registration threshold for wholesale and retail trade
Conditions laid down in section 3(2) and 10(2),
for the purpose of calculation of registration of wholesale and retail trade has been removed.
Accordingly, for any period on or after January 1, 2020, registration threshold for wholesale and retail trade is determined based only on the value of taxable supplies of each and every person separately.
4. Voluntarily Registration for VAT
For any taxable period commencing on or after January 1, 2020, any person who carries on or carries out a taxable activity but the value of taxable supplies is less than the required registration threshold, also can apply for VAT registration under the voluntary registration scheme upon making a written request to the Commissioner General made by such person ec. 12(1)].
However, persons registered for VAT under the voluntary registration scheme are not eligible to obtain registration under Simplified Value Added Tax (SVAT) Scheme, until the taxable supply of such person is lesser than the registration threshold referred to in section 10 of the VAT Act (Rs. 75 million per quarter or Rs. 300 million per annum) other than;
5. Reduction of piece-based VAT rate
Piece based VAT rate applicable on local supply of certain garments by export-oriented enterprises which entered into agreement with the Board of Investment, has been reduced to: -
6. Discontinuation of Deemed input facility granted to wholesale and retail trade
Claimability of Deemed Input VAT calculated on the purchases made from suppliers who have not registered for VAT by any person registered for VAT as wholesalers and retailers on or after 02.05.2016, is terminated with effect from 13.05.2021. ec. 22(14)]
i. Import or supply of-
ii. Supply of –
iii. Local supply of any goods ther than goods referred to in paragraph (c)], which would have been exempted on importation, if imported.
Commissioner General of Inland Revenue