The Hon. (Dr.) Jagath Gunawardana

¶ 01 Thank you, Hon. Deputy Chairperson, for the opportunity to comment on the Value Added Tax (Amendment) Bill.

¶ 02 VAT, introduced in 2002 to replace GST, is a consumption tax ultimately borne by consumers on imported goods and domestically supplied goods and services. The rate was 8% before 1 June 2022, then increased to 12% (June–August 2022), 15% (from 1 September 2022 to 31 December 2023), and to 18% from 1 January 2024 due to the economic crisis. The current Government did not make the 2024 increase; it was effected by the administration then in office.

¶ 03 VAT registration applies if taxable supplies exceed Rs. 15 million per quarter or Rs. 60 million per year; for financial services, Rs. 3 million per quarter or Rs. 12 million per year.

¶ 04 In 2022, about 10,604 businesses were registered for VAT, and 258 for financial services. Tax revenue was only 7.3% of GDP; VAT collected was Rs. 463,071 million, about 1.9% of GDP, rising to about 2.5% in 2024. With the new tax policy, we target total revenue of 15.1% of GDP in 2025.

¶ 05 We propose specific amendments to rectify deficiencies in the regime left unaddressed earlier, close loopholes, and align with our “Prosperous Country – Beautiful Life” policy framework.

¶ 06 Notable measures: - Exempting from VAT the provision by an employer to employees of free or subsidized meals and transport between residence and workplace. This supports worker welfare and productivity, especially in apparel zones where public transport is limited. - From 1 April 2025, exempting domestically produced liquid milk and yoghurt from VAT—pro‑people measures expected to reduce retail prices and stimulate demand for local dairy, thereby strengthening the livestock sector, import substitution, and exports. In 2023, milk and related product imports cost Rs. 88,620 million, while exports earned only Rs. 1,623 million. Local production meets only about 40% of demand; policy aims to achieve self‑sufficiency and promote rural development.

¶ 07 Milk is a key protein source critical for child growth and immunity; many children suffer malnutrition and recurrent illness. Making milk products more affordable will help alleviate this.

¶ 08 Overall, these amendments raise revenue where needed while granting targeted relief that strengthens the economy indirectly. Thank you.