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| Saturday, 26 July 2003 |
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by Jayantha Sri Nissanka and Bharatha Malawaraarachchi The government is taking legal action against defaulters of Value Added Tax, Finance Minister K.N. Choksy told Parliament yesterday. "VAT is a new system introduced in Sri Lanka and the first few months of its operations have surfaced certain practical difficulties. One such is the scheme of refunds for input credit and this is being examined and necessary amendments will be effected to the law," Minister Choksy added. The Minister was making a special statement in reply to a statement by the Opposition Leader Mahinda Rajapakse who on Tuesday questioned about the failure of the Inland Revenue Department to collect the anticipated revenue from the VAT. There is a Rs.20,000 million shortfall in VAT collection. While explaining the causes for the failure to collect the estimated amount, the Minister said several persons liable to pay VAT, having placed an erroneous interpretation on the Inland Revenue (Special Provisions) Act No. 10 of 2003, have not made payment assuming that making a declaration under this Act would exempt them from the payment of VAT. Steps have been initiated to collect these payments. The refunds of input credit amounted to 14 per cent of collection while certain industries such as construction and leasing are liable to VAT at 10 per cent. "However, they have as a substantive part of their input supply items which are liable to VAT at 20 per cent. This has resulted in large claims of input refund and this is being arrested with input credit claims available to the leasing industry being limited to 10 per cent of all input supplies with effect from 2003," he added. The Minister noted that claims for input credit had not been adequately verified and administrative measures are being taken immediately. The VAT was introduced after abolishing the GST and NSL which together imposed a burden of 20 per cent on the consumer. The VAT has in effect two bands - 10 and 20 per cent. "Our Government has placed as many items as possible in the 10 per cent band. By and large only luxury items fall into the 20 per cent band. Additionally, many essential items such as wheat, vegetables, fruits, infant milk foods and pharmaceuticals are zero-rated for VAT." The Minister noted that VAT is therefore socially beneficial compared to the cumulative effect of the GST and NSL." The Government will therefore, stand-by this system and make improvements which experience shows to be necessary." He also said the establishment of the Revenue Authority will improve both the tax administration and collection. "The establishment of the Authority is proceeding and consultations are taking place with relevant trade unions to accommodate their requirements as far as practicable." The Minister also said the increase of wages in the public sector is being examined by the Government with a view to granting the maximum possible raise. "We will not do that as a popular political measures as was done by the previous Government on the eve of the last General Election." Earlier, the Government decided to conduct a full investigation in to the failure of the Inland Revenue Department to duly recover the Value Added Tax (VAT) amounting to Rs. 20,000 million from a handful of business organisations who had collected this amount from the tax payers.It has been revealed that such lapses have been occurring throughout many years in the past owing to certain defects in the pattern of tax collection prevalent in the Department and that defaulters include more than 50 large scale companies. The Ministry of Finance has taken steps to arrange a discussion on the proposed Revenue Authority to be set up by amalgamating the Customs Department, Inland Revenue Department and the Excise Department with the representatives of the Trade Unions of the above departments. Discussions on the proposed Revenue Authority, between the Minister of Rural Economy and the Deputy Minister of Finance, Bandula Gunawardane along with the Secretary to the Treasury, Charitha Ratwatte and the representatives of the Trade Unions attached to the Customs Department, Inland Revenue Department and the Excise Department is scheduled to be held at the Ministry of Finance on July 29. |
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