Aug 10, Colombo: Minister of Finance and Mass Media and Information Mangala Samaraweera said the government's main policy is to systematically reduce the tax burden on the people and therefore a new amended Inland Revenue Act will be presented in the House soon.
Minister Mangala Samaraweera made this disclosure commencing the debate on the Value Added Tax (Amendment) Bill which was passed in Parliament yesterday.
The bill to amend the Value Added Tax Act, No. 14 of 2002 to exempt private hospital channeling services and several other selected items from VAT was presented by the Finance Minister on 17th of July, 2018.
Speaking at the debate, Minister Samaraweera said the Value Added Tax (Amendment) Act was presented considering the people's view to introduce amendments to the VAT on several important sectors.
The amendment will exempt VAT on private medical services, especially channeling services used by people, medical services, medical institutions and healthcare. VAT will be applied only for the room charges for residential treatment in private hospitals.
According to the amendments, infant milk power, educational books and periodic publications, medical equipment, clinical equipment, child care services and eco-friendly renewable energy equipment have been exempted from the VAT.
He said implementing budget proposals system of refund of VAT for tourists will be introduced from September at the International Airport at Katunayake.
According to the Minister, the foreigners can claim for VAT refund up to 15 percent for items they purchase in Sri Lanka. This measure is to boost tourism in the country.
The Minister noted that income from tourism has risen to US$ 4 billion. "Minister of Tourism is planning a systematic program to increase the number of tourists visiting our country to 4 million by the year 2020 and through that to increase the earnings up to US$ 7 billion by 2020,” he said.
"Our main goal is to reduce indirect taxes and expand direct taxes. In January last year, there were only 48,850 income tax files with 21 million people living in the country. In this January it was able to open 336,671 tax files. As such, arrangements are being made to expand the direct tax. About 82% of the country's national income is from the VAT paid by the general public and indirect taxes," the Minister explained.
"The main policy of the government is to gradually reduce that burden in the future. Currently, 18 percent of direct taxes are received. Indirect taxes amount to 82 percent. Our aim is to change this to 60 to 40 in the next two years. For this we implement a formal tax program. We introduced the new Inland Revenue Act. Several amendments to the new Act will be brought to Parliament during this month," Minister Samaraweera said.
"There was some problems for artists and to the savings account of children. We hope to correct these and some others and present the amended Act within August," the Minister further explained.
Explaining the tax imposed on vehicles under 1000 CC, the Minister said, a tax system based on the engine capacity was presented. Through the system it was possible to stop all the smuggling rackets.
In January the price of vehicles under 1000 CC was reduced by Rs. 800,000 allowing the average middle class to buy the first car. However, the last six months turned into a tsunami. From January to May 24,000 vehicles below 1,000 cc were imported. On one side even at midnight there was traffic congestion in Colombo. A more serious problem was we were losing foreign exchange to the point that the dollar would have been 167 rupees if the trend continued. We considered these when we decided to raise the taxes. Still the taxes are Rs. 400,000 lower than the taxes during the former regime," the Finance Minister told parliament.
He expressed confidence that the VAT could be reduced by 2.5 percent by 2020 with the streamlining of tax system in the country.