No Goods and Services Tax (GST) before Budget 2022

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The Goods and Services Tax (GST) Bill, which was expected to come into effect before the end of the first quarter this year, is now pushed to the fourth quarter of 2021 due to time constraints.

Speaking to us, Treasury Secretary S.R. Attygalle stated that even though the Bill was drafted and was prepared to be announced, the Ministry of Finance will not be able to announce it prior to the upcoming Budget 2022, scheduled for 14 November.

GST Registration - Goods and Services Tax in PKD Nagar, Coimbatore,  Creative Excellence | ID: 20835803697

“I doubt that with the upcoming Budget there will be adequate time to present it (GST Bill), but it will happen soon,” Attygalle said. 

The GST was announced under the Budget 2021 by Prime Minister Mahinda Rajapaksa, who was also the Minister of Finance at the time. Since then, the Attorney General’s (AG) Department gave clearance to proceed with the new implementation, the Legal Draftsman drafted the Bill, and the Bill was recently redirected to the AG for observation.

According to Premier Rajapaksa, Sri Lanka will introduce GST for items including vehicles, cigarettes, telecommunications, alcohol, and betting and gaming.

Attygalle, speaking to us in January, said: “It is a single tax because we want to simplify the existing tax system, without having five or six taxes for one product or service. It is one tax, like the International Monetary Fund (IMF) wants.”

According to him, GST would be collected by agencies under the Ministry of Finance, and an accounting officer at the Ministry would be responsible for collection.

However, it was not assigned to the Inland Revenue Department (IRD), as would usually be the case for any other tax implementation. He had also added that the percentage of the tax would depend on the commodities and would be decided shortly.

Meanwhile, speaking to us, Minister of Trade Bandula Gunawardana said that since the current Government came to power, income tax, value-added tax (VAT), and other taxes were reduced “significantly”. Hence, the implementation of the GST system in Sri Lanka will be beneficial to the Government in terms of tax revenue.

Furthermore, we also spoke to Ministry of Finance Department of Fiscal Policy Director Kapila Senanayake, who said that due to the implementation of GST, the payment and collection of tax will be easy, while also boosting transparency due to the online payment system.

“I think it’s beneficial to all businesses as well as all other parties. Some of the companies have sent some proposals on how to implement this tax. We will analyse their concerns as well, but it has not been discussed yet,” Senanayake noted.

He added that the preparation for the implementation of GST was almost complete, with a simplified tax structure which would eventually benefit the respective companies.

“Take vehicles, for example: These have the excise special provision, luxury tax, vehicle entitlement levy, and other taxes for different categories. However, through this new implementation, it will be only one tax. It’s easy to implement, as there won’t be any issues,” Senanayake said.

In January, we spoke to a distilleries company that would be subjected to this tax before the end of the first quarter. A senior company official, who wished to remain anonymous, told us that the industry was not certain about the tax or the tax structure, and added that whilst they spoke to the relevant authorities, no clear directives were given to the industry yet.

“They are combining all the existing taxes. As of now, taxes imposed on those categories are not consistent; some are charged on value, some are product-based, and some are revenue and unit-based, and they are trying to merge them together. So this is not easy – it is a cumbersome process. We still do not know the impact we will face,” the official noted. 

Likewise, another leading distilleries manufacturer told us in January that they had not received anything in writing and do not want to comment on the tax until they do.

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