Special Goods and Services Tax to come into effect from January | Sri Lanka News

  • Enforcement remains elusive amid soaring consumer prices 

The Special Goods and Services Tax (GST), which was in the budget last year but wasn’t enforced due to the economic downturn caused by the virus resurgence, is set to come into force from January next year. 

Presenting the budget for 2022, the government walked an extremely tight rope in raking in revenues, without imposing any new taxes or raising the existing taxes on the consumers, who are already grappling with the soaring prices, despite the growing chorus to raise tax revenues to narrow the bloating budget deficit. 

“As proposed by the 2021 budget, I propose to implement the Special Goods and Services Tax, for which legal provisions are already drafted, with effect from January 2022, to cover all goods and services covered by the act,” said a text of the budget speech delivered by Finance Minister Basil Rajapaksa.

The government earlier this year drafted the legal provisions required for a new Goods and Services Tax Bill, aimed at simplifying the goods and services tax related to liquor, cigarettes, vehicles, communication and betting. 
The government however separately targeted the tobacco and alcohol industries, with Rs.5.0 tax on each cigarette and an increase in the Excise tax on liquor, with immediate effect, projecting to collect Rs.8.0 billion and Rs.25.0 billion, respectively in 2022. 

The alcoholic beverage industry has been calling vehemently for a sensible tax policy on the sector to tackle the growing menace of illicit liquor, as they showed that legal alcohol sales had come down, due to continuous targeting of the sector, sending their prices to unaffordable levels and as a result, 

coconut arrack is at the risk of soon becoming a privilege of the wealthy.

The government meanwhile via the Special Goods and Services Tax targets to collect up to Rs.50 billion in fresh tax revenues, on top of an additional Rs.14 billion aimed through Value Added Tax and other charges, as the government revised the Valued Added Tax on financial services on the banks and finance companies to 18 percent, from 15 percent, only for one year. 

The government in 2019 cut the Value Added Tax from 15 percent to 8 percent on all other sectors, as part of a broad-based fiscal stimulus afforded to the people and the businesses to reignite the animal spirits of the economy. But the pandemic, which soon struck the economy in March 2020, prevented the economy from enjoying the intended outcomes of such action. Except for a couple of one-time taxes aimed at the big businesses, the government broadly maintained its low tax policy, which they kicked off in 2019-end in its budget for 2022.  
The taxes on goods and services collectively aims to rake in Rs.1,031 billion in 2022, up substantially from Rs.650 billion estimated to have collected by the 2021 year-end. 

While the specifics such as the rate/s and full list of goods, which become subject to the special GST, are yet to be published, the persistent higher consumer prices, as seen from the recent inflation readings, might complicate the enforcement of the new tax, unless the economy gathers momentum.

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