Dilemma of reducing VAT and removing NBT on consumers
View(s):Although the economic advantage of accelerating money circulation in the country by reducing and eliminating several taxes is clear, its benefits via price reduction in consumer items however have not been passed on to the people so far, consumers complained.
As per the legal and administrative procedure, the VAT reduction and NBT removal proposals approved by the cabinet of ministers will not be effective until the respective amendments are passed by Parliament, several eminent tax consultants said.
Accordingly, the VAT rate of 15 per cent will continue while the NBT would be 2 per cent in accordance with the 2019 budget proposal as only a vote on account 2020 is enforced at present.
President Gotabaya Rajapaksa has instructed the Consumers Affairs Authority (CAA) and Inland Revenue Department (IRD) to closely monitor whether the businesses are passing on the benefits of recent tax cuts to the people.
This directive was issued by the President as the Presidential Secretariat continued to receive complaints from the general public towards this end.
State Minister for Development Banks and Loans Shehan Semasinghe pointed out that the main aim of the present government is to bring down the tax burden of the people and pave the way for the acceleration of money circulation instead of filling state coffers with public tax money.
The President’s Office said the prices of several goods and consumer items including hardware, ceramics, cement and other building materials, cosmetics and day-to-day household items, garments, and school books should come down.
A Finance Ministry media release quoted several retail traders as saying that wholesale distributors have not given such benefits to retail businesses and it is a few wholesale distributors and manufacturers who control the market disrespecting fair trade and competitive practices.
Domestic manufacturers are also requested to pass tax benefits to the people in doing their business in a competitive manner, Finance Ministry announced.
The tax benefits particularly from the reduction of VAT on the sale of goods at both retail, wholesale and import points effective from December 1, 2019 have not been passed on to the people, consumers complained.
Two per cent NBT was administratively removed from November 27, 2019 while from December 1, 2019 all manufacturers and importers have been charging VAT at the rate of 8 per cent.
Administratively the rate changes were implemented though requisite statutory amendments to VAT and NBT have not been introduced.
A notice should be issued to inform the tax payers that the VAT and NBT proposals will be effective only after the passing of the two amending statutes in Parliament, an eminent tax consultant suggested.
He noted that the most effective way to resolve the VAT issues would be to adjust the tax to 8 per cent from January 1, 2020 where VAT had been charged at 15 per cent for goods and services.
The negative short term impact of the tax reduction will be the widening of the trade deficit, reducing of government revenue and the adjustment costs on domestic industries that benefit from higher taxes on imports, he pointed out.
(BS)