News
Lower tax thresholds to create 30,000 new files, with inevitable price hikes
View(s):By S. Rubatheesan and Damith Wickremasekara
With the government’s proposal to reduce the registration threshold of the Value Added Tax and the Social Security Contribution Levy, some 25,000 to 30,000 new tax files are expected to be opened, targeting revenue of over Rs 150 billion.
The 2026 budget has proposed that the annual thresholds of the Value Added Tax (VAT) and the Social Security Contribution Levy (SSCL) be reduced from Rs 60 million to Rs 36 million.
In turn, small and medium business entities, including grocery shops under the tax net, will now be forced to register if they have an average turnover of Rs 100,000 a day, and it is likely the tax burden will be transferred onto consumers.
The budget proposal, once passed in the House, will come into effect from April 1 next year onwards.
A senior Inland Revenue Department (IRD) official said that although the traders are not expected to pass on the tax to the consumers, it is inevitable.
He said that last year’s IRD target was Rs 2,085 billion, and so far 88 per cent of the target has been met, with expectations that the set targets could be exceeded.
He said that among the sectors targeted are small-scale hotels.
Senior Deputy Commissioner J.T. Chandana, who is also the Secretary of the IRD Staff Officers union, said one of the reasons for the reduction of the threshold was to deal with tax evasion by some companies by operating two registrations.
He said vehicle importers who evaded the payment of the Social Security Levy also would have to pay the levy under new tax measures.
The SSCL is to be charged at the time of import or manufacture and sale of vehicles.
Meanwhile, the IRD’s former Deputy Commissioner General, N. M. M. Mifly, told the Sunday Times that reducing the threshold to bring small and medium enterprises under the tax net is unfair since most of the retailers purchase goods from VAT-registered importers and manufacturers.
“Fairness is critical when it comes to taxation. We have to consider the ability of taxpayers to bear the burden,” he stressed.
As part of increasing more revenues to state coffers, the government is to impose VAT and SSCL on imported coconut oil and palm oil, replacing the current Special Commodity Levy of Rs 150 per kilogram and Rs 275 per kilo, imposed respectively.
The custom tax (CESS) of Rs 100 per kilogram on imported fabric is to be removed.It will also be subjected to VAT, similar to locally manufactured products.
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