Sunday, October 2, 2016

VAt and "Goni Billas"

If what the commentator says is correct the government administrators / auditor should take immediate action to ratify it before the bill is presented to the parliament.

VAT should be applied at only one level and one level only.
This is a subtle insinuation by the "Goni Billas" of the previous regime. 

"Goni Billas" want to come back to power.

When we send people without year five examination to the parliament, what can we expect from the legislature?

This is a Reproduction from Political commentator of a Local Daily.


The revised VAT Bill which was gazetted in August is set to be presented to parliament in the coming days. This Bill will not encounter the same opposition from the trading community as the previous version. But it does mean that the country will be going for the 2017 budget with a full 15% increase in private health care costs, a full 15% increase in the costs of all telecommunication services including internet, and an overall 15% increase in the retail prices of goods because of VAT on the wholesale and retail trade. This writer was told by members of the trading community that because of the structure of the trading system in this country, the price increase that the consumer will actually have to pay will be much higher than just 15%.

The way trade in most goods happen in Sri Lanka is that the importer sells his consignment to a Pettah merchant and the 15% VAT paid by the importer is passed on to the merchant who in turn sells the goods to van and lorry delivery services. At each stage, the buyer of the goods is entitled to deduct the VAT component he had to pay in buying the goods from the VAT he has to pay when selling it to the next level. So in effect the importer will be paying VAT on the goods he brings into the country and passing on the whole amount to the Pettah merchant. The Pettah merchant will pay VAT on the ‘value added’ at his level (ie. his profit) and pass on the whole amount to the delivery services which in turn will deduct ‘input’ VAT paid on its own purchases and pay VAT only on its profit when it sells the goods to retailer. The retailer when he sells the goods to the consumer will add on the VAT he had to pay to the delivery service, plus the VAT he himself has to pay on his profit when he sells the goods to the consumer.

At each level, the 15% paid by the Pettah merchant on his profits, the 15% paid by the delivery service on his profits, and the 15% paid by the retailer on his profits gets added on to the 15% originally paid by the importer when selling his goods wholesale. Nobody at any of these levels can afford to pay the VAT out of his own profits and refrain from passing it on to the next level. In fact VAT is supposed to be passed onto the next level – it’s a tax that has to be paid by the consumer not the trading community. So because the goods change hands so many times before it reaches the consumer, the latter will have to pay the VAT paid by each level up to the importer which means that the consumer will have to shoulder a VAT burden that could amount to more than 20% of the price of the goods he buys. This is why the VAT on the wholesale and retail trade was never a good idea. We have too many intermediary levels in this country, each paying VAT and passing it on to the next level.   

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