The Hon. Nimal Palihena

¶ 01 Hon. Deputy Speaker, today we debate a set of Orders and Regulations published via Special Gazettes. I see these as measures to protect revenue while providing certain relief and creating a level playing field for those engaged in business.

¶ 02 Under the Ports and Airports Development Levy Act, the Excise (Special Provisions) Act, the VAT Act, and the Stamp Duty (Special Provisions) Act, the intent is to align with international product classification standards and avoid issues when dealing with global trade. Here we are not changing tax rates per se, but updating HS codes: removing about 20 and introducing 53 revised codes, to ensure smooth application of levies.

¶ 03 On VAT, the long-standing specific Cess on imported textiles is being removed and VAT applied instead. A Cess is a sunk cost embedded in prices and cannot be credited, which pushes up consumer prices. VAT is a value-added tax that can be credited at subsequent stages. When a registered person sells the finished goods, the input VAT can be set off. Therefore, this improves neutrality between importers of textiles and domestic garment manufacturers. There is a misconception that only apparel exports get VAT relief. In fact, any exports qualify under VAT rules, not only apparel.

¶ 04 Lowering the VAT registration threshold from Rs. 60 million brings smaller businesses into the VAT net. If they register, they can claim input VAT, including on imports, thereby neutralizing tax costs when they sell. Thus, concerns that this will destabilize local producers are misplaced. Removing Cess reduces distortions and allows input VAT recovery, benefitting both domestic and export channels.

¶ 05 Accordingly, I support approving these measures.

¶ 06 Thank you.