The Hon. Nimal Palihena

¶ 01 Hon. Deputy Speaker, today we are debating amendments to the Value Added Tax Act, No. 14 of 2002. Government needs revenue to function and deliver services, and VAT is central among indirect taxes. Historically, VAT rates have been altered within the 8%–18% band according to different governments’ preferences, sometimes unexpectedly, hindering revenue and governance, thereby burdening the public. These amendments aim to correct such deficiencies and broaden the base so that those who should pay, do pay.

¶ 02 With the digitalization of commerce, online and digital service providers—domestic and foreign—constitute a growing segment. Some portions currently fall within VAT while others do not, creating unevenness. The amendments create a level playing field so that both domestic and foreign digital service providers are appropriately brought into the VAT net, thereby contributing to revenue.

¶ 03 The Hon. Leader of the Opposition said Sri Lanka is poor and that the Government is inactive on the U.S. tariff decision. In truth, the country’s poverty is not due to the last few years, but because those who governed for so long drove the nation into crisis pursuing their political whims. Moreover, this U.S. decision is not country-specific; earlier our exports faced zero tariffs to the U.S. Generally, they now propose a 10% across-the-board tariff, and then an additional component based on each country’s bilateral trade deficit, which could raise the burden up to about 44% for us. Since around 23% of our export earnings are tied to the U.S. market, this is serious, and the Government will necessarily intervene.

¶ 04 On imports, Sri Lanka imposes a variety of levies (Customs Duty, CESS, Ports and Airports Levy, etc.), which reduce U.S. exports to Sri Lanka. These taxes raise import prices and limit volumes. Rational future adjustments could provide negotiating space bilaterally. Trade agreements and cooperation frameworks with the U.S. could also open avenues to address issues.

¶ 05 Regarding SVAT, past experience shows leakage and fraud through the simplified mechanism, especially by non-genuine exporters seeking fraudulent VAT credits. We are now bringing necessary technical interventions. RAMIS has underperformed; however, as the Deputy Minister noted, since the new measures commence from 1 October 2025, we have time to develop systems, register taxpayers, and ensure we collect due VAT more effectively.

¶ 06 We have heard from businesses that under prior systems the Government often failed to refund in time, hurting cash flows and jobs. Under the new system, suppliers are protected because they can add VAT at the point of supply; where exporters are concerned, monthly VAT returns to Inland Revenue will form the basis for refunds within an outer limit of 45 days from the date of proper filing in the system—often sooner after verification—thus protecting cash flow and employment.

¶ 07 On the egg tax effective 1 January 2024: this is not a newly introduced tax; it already existed. Some have used this to agitate the public. We must be responsible in communicating such measures.

¶ 08 This Bill also zero-rates employer-provided meals and transport benefits when calculating VATable value, especially relevant in the garment sector, so there is no new VAT burden on such welfare provisions.

¶ 09 Overall, these amendments aim to secure revenue reliably to fund projects and services, while correcting technical flaws and leveling the field. I express confidence they will benefit the country, the people, and the Government.

¶ 10 Thank you, Hon. Deputy Speaker.