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Supreme Court suspends VAT, NBT increases
The revision of the Value Added Tax ( VAT) and the Nation Building Tax (NBT) without the approval of Parliament was in violation of the Constitution taking away the control of Parliament over public finance, noted the Supreme Court suspending the tax revisions dated May 2.
The court held that notice of the respondents to tax payers and general public with regard to tax revisions were ‘ultra vires’ and had no legal power or authority. The Bench of Supreme Court Judges consisting of Chief Justice K. Sri Pavan, Justice Buvaneka Aluvihare and Justice Prasanna Jayawardena issued an interim relief as sought by five petitioners suspending the operation of the VAT and NBT revisions done by way of notices by the Finance Minister and the Commissioner General of Inland Revenue from May 2.
The order will be valid until the Bill titled Value Added Tax (Amendment) Bill is passed by Parliament or until the conclusion of the instant cases in court. The order would suspend the revised tax rates, thresholds and exemptions pertaining to VAT and NBT. The Court noted that the revisions made were illegal since they were violative of Article 148 of the Constitution which deals with the control of Parliament over public finance. The five rights applications challenged the tax revisions on the basis that those revisions were illegal since they were not approved by Parliament.
The Court decided that there is a prima facie case for the petitioners and decided to fully inquire into the five rights pleas on June 22. The five petitioners – National Freedom Front leader, Parliamentarian Wimal Weerawansa, Ven. Maduruoya Dharmasiri Thera, Ven. Bengamuge Nalaka Thera, the Centre for Policy Alternatives and Sivapathasunderam Sivakumar – cited Minister Ravi Karunanayake, Treasury Secretary R.H.S. Samarathunga, Inland Revenue Commissioner General Kalyani Dahanayake and the Attorney General as respondents.
The petitioners stated that the VAT rate was increased to 15% from 12% and the threshold for registration for VAT reduced to Rs. 3 million per quarter. The wholesale and retail trade were made liable for VAT and the threshold for liability was reduced to Rs. 3 million per quarter. Currently exempted supplies such as supply of telecommunication services, import or supply of telecom equipment or machinery, high tech equipment including copper cables for the telecom industry and the issue of licenses to local telecom operators by TRC are made liable for VAT. The supply of healthcare services, supply of goods or services to any specified projects other than housing projects were also made liable for VAT, stated the petitioners.
Although the current rate applicable for NBT remained unchanged at 2%, the threshold for registration for NBT was reduced from Rs. 25 million per quarter to Rs. 3 million, except for any locally procured agricultural produce. The present exemption on the telecommunication service, the supply of electricity and the sale of lubricants were also removed.
The petitioners argued that the amendments were not approved by Parliament and were illegal, ultra vires the powers of the respondents and violative of the rights of the petitioners. They sought an interim order suspending the operation and implementation of the notice bearing the title “Notice to the Tax Payers-Value Added Tax (VAT) and (NBT)” issued on the instruction of the Finance Minister and by the Commissioner General of Inland Revenue and another interim order restraining the Finance Minister and the other respondents from directing and collecting VAT and NBT until the petitions are determined.
Senior Deputy Solicitor General Farzana Jameel with Senior State Counsel Dr. Avanti Perera appeared for the Attorney General. President’s Counsel Manohara de Silva with Kanishka Vitharana, Savendra Fernando PC and Darshana Wereduwage appeared for the petitioners.
The petitions were to be argued on December 6.
| VAT Bill with retrospective effect challenged Gampaha District UPFA Parliamentarian Sisira Jayakody and lawyer and Mahajana Eksath Peramuna Executive Council member Nishantha Wimalachandra this week challenged the constitutionality of the Bill titled Value Added Tax (Amendment) Bill before the Supreme Court. The Bill was tabled in Parliament to get its approval for the VAT revisions made on May 2. They stated that certain clauses of the Bill sought to antedate the operative date and the liability to pay VAT. As a result the traders declared to be liable to pay VAT with retrospective effect would be charged on transactions already concluded without collection of VAT from the customers, they argued. This impossibility, contended the petitioners, resulting from due compliance with law, would create a situation where persons who acted in breach of the law would be placed at an advantageous position, retrospectively, against those who duly complied with the law during that period. They further alleged that acts of absolute nullity would be validated retroactively i.e power to legislate with retrospective effect cannot not be construed as having power to validate a crime or an offence, which, they alleged, is illegal, immoral, and unconstitutional and burdening the public with unbearable taxes would amount to inflicting torture and contravening Article 11 of the Constitution. They stated that certain clauses were inconsistent with the Constitution and sought the court to determine same and declare that the Bill should be passed by the two thirds majority in Parliament and approved by the people at a referendum. | |