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VAT exempt items up for review, says CAA
Some held protests (above) while others put up shutters in protest of increased VAT. Pic by Rahul Samantha Hettiarachchi
The essential food items that were announced by the government as being free of VAT in its November 2015 budget will come under review, the Consumer Affairs Authority (CAA) said.
CAA Director General A.K. D.D.D. Arandara last week said arrangements are underway to revise the prices of the essential items as the prices of the items in the world market has gone up. Accordingly he said that prices of the 15 items including sugar, dhal, onions, canned fish, potatoes will go up. In the process he said that some items will be omitted and others included depending on the consumption and demand of the product. He said the prices of these items were fixed last November, but it is not possible to fix the maximum retail price (MRP) at the same level.
Arandara said the CIF (cost, insurance and freight) value, import cost and transport charges have to be calculated when fixing the prices. The CAA will discuss with traders, importers, Customs, the Treasury and the Finance Ministry when fixing the prices.
Also plans are in place to revise the prices of these items monthly or quarterly as deemed necessary. “ MRP has to be revised from time to time, otherwise it becomes unrealistic. The prices may go up or come down in the world market,” he said.
Once the gazette notification on the prices are out the CAA is planning to monitor all retail and wholesales outlets in an effort to ensure that the controlled prices are being observed.
Meanwhile several protests were held countrywide by traders shutting down businesses calling on the Government to revoke the Value Added Tax (VAT) which resulted in President Maithripala Sirisena holding a meeting with wholesale and retail traders. Subsequent to this meeting the Government has decided to review the VAT increase it imposed in early May this year.
At the Cabinet briefing on Tuesday it was announced that a special committee is to review the grievances of the traders regarding the VAT. The committee will consist of the President, Prime Minister, Finance Minister, Minster of Industries & Commerce, Minister of International Trade and Rural Economy and the Minister of Fisheries. Other ministries that have a stake hold on the subject are invited to join in. The committee will meet every Tuesday. At the first meeting that started on July 5 it has been agreed to identify 10 more items to add to the essential food items list. 
The committee also decided to appoint a task force consisting of 100 CAA officers under a Superintendent of Police Division. These officers are to raid shops that sell products above the MRP. The media and people’s representatives have been invited to participate in this exercise. A poster campaign is also planned to educate traders and consumers.
Additionally the Finance Ministry will also employ 1,500 officers who will go from village to village educating the public on how the VAT is operated.
However the Government has said that it will not be strict on the implementation of VAT registrations this year. A decision on future action will be taken after reviewing the issues.
Deputy Minister Finance Lakshman Yapa Abeywardena said that the traders have unjustly pushed up the prices of goods. The prices have gone up by nearly 50 to 100%, he said. He countered the traders’ argument that the US dollar has appreciated . “It did not go up by 100%. There should only be a 4% increase in goods and services. The prices have gone up drastically. It is unbelievable,” he said.
He said that the committee will be monitoring the prices every Tuesday. He said that the Finance Ministry will deploy graduates in the Ministry, Auditor General’s office and other departments who will go into villages and educate people on the VAT.
He assured that once matters are sorted out the committee will also be looking at VAT on hospital services including dialysis on kidney patients, blood tests and other invasive procedures performed frequently in private hospitals. Pharmaceutical drugs given to in-patients in private hospitals will also come under review. For now although there is no VAT on pharmaceutical drugs once it is given to patients on a hospital bed it comes under VAT.
Meanwhile the traders who met President Sirisena said that the VAT calculation is very complicated and that traders will find it difficult to calculate it. According to the new threshold of Rs. 1 million a month even an ordinary grocery shop or other retailer who has business for Rs.33,333 per day will get caught in the net.
Indika Liyanage, Secretary, Samastha Lanka Velanda Sangam Ekamuthu in Anurdhapura said that earlier when the VAT was 11% retailers and wholesalers were excluded from VAT. “Only 27 wholesalers and retailer chains were liable to pay VAT. But now even the small grocery shops are liable to pay VAT,” he said.
He complained of serious accounting problems as for every 15 days VAT has to be calculated and paid to the Inland Revenue Department. The businesses are expected to pay VAT on turnover on the first 15 days at the end of the month and VAT on the next 15 days before the 15th of the following month.
Mr. Liyanage argued that it is a complex system and many of the traders are not sufficiently literate to do the accounting. “They have to employ people to keep accounts,” he said.
He said that the earlier tax was only on importers, manufacturers and services. The retail shops were only selling as there was no value addition.
He contended that the businesses are ready to pay tax but he said that it should be a simple tax readily calculable.
Newton Perera , President of the Kandy Sinhala Grocery Association with over 350 members said that it is difficult to differentiate or to know the items liable for VAT and those exempted.
Chirantha Amerasinghe, a member of the National Movement for Consumer Rights said that VAT is a burden on the consumers while the traders are confused. Moreover he said that VAT has been introduced without approval of Parliament.
There are six cases pending in the Supreme Court and when one case was taken up last week the Attorney General has objected to an interim order to stop executing the VAT arguing that for nearly 40 years the tax has been approved by Parliament, retrospectively.
According to the Constitution no taxation should be implemented without approval of Parliament. Also the Act on VAT says that items that have been excluded in VAT including telecom and health cannot be absorbed in without approval of Parliament.