DEPARTMENT OF INLAND REVENUE
VALUE ADDED TAX (VAT)
Amendments to the Value Added Tax Act No.14 of 2002
Taxpayers are informed that the following changes to VAT provisions, as announced in the Budget
2011, take effect from 01.01.2011 (unless stated otherwise) pending formal amendments being made to
the Value Added Tax Act No. 14 of 2002.
1. Reduction of 20% VAT Rate to 12%
(a) The reduction of the VAT rate of 20% to 12%, in respect of the import or supply of
goods specified in the Fourth Schedule to the VAT Act, is now in force effective
(b) The reduction of VAT rate of 20% to 12%, on the supply of following services, takes
effect from 01.01.2011:
‐ services of hotels, guest houses, restaurants or similar institutions in
so far as such services are provided for holding wedding receptions or other
receptions, including hiring of halls for wedding receptions or other receptions other
than the services for holding professional conferences, seminars or similar events; and
‐ Financial Services referred to in the Chapter III A of the VAT Act.
(In the calculation of profits for this purposes such VAT will also be deductible)
2. Introduction of a Rate Schedule (based on the duration) for payment of
The following rate schedule takes effect from 01.01.2011 for new and existing optional VAT
payers, which provides for a rate varied (only) with the duration (specified) after the date of
registration for such VAT.
Any person opts to pay optional VAT can remain in such regime throughout the period even if
the turnover exceeds the maximum limit.
1. First 3 years from the date of registration 2%
2. Next 3 years 4%
3. Next 3 years 8%
4. Next 3 years 12%
3. Additions to the Schedule of Exemptions.
(a) Exemption of the import or Supply of the following goods is in force effective from
‐ Petrol specified under HS Code 2710.11.20;
‐ Coal specified under HS Codes 2701.11, 2701.12 and 2701.19; and
‐ Bitumen specified under HS Heading 27.14 and HS Code 2713.20.
(b) Exemption of the import or Supply of Machinery and equipment for manufacture of
grain mixed bakery products classified under HS Codes 8437.10, 8437.80 and 8428.90,
is in force effective from 29.11.2010.
(c) The exemption of the supply of following services takes effect from 01.01.2011:
‐ Telecommunication services;
‐ Locally manufactured briquettes and pallets using bio mass wastes;
‐ Goods or services to any infrastructure development project funded through
foreign loans or donations directly to government ministries, as approved by the
Minister of Finance;
‐ Goods or services by an institution set up by the Ministry of Defense for the
rehabilitation of disable soldiers, so far as the activities are carried out by the
participation of such soldiers;
‐ Locally developed software;
‐ Services being receipts from re-insurance by any local insurance company by way
of commission or compensation in an insurance business;
‐ Services being the issue of licenses to local telecom operators by Telecommunication
Regulatory Commission ( TRC)
‐ Educational services; and
‐ Leasing facilities for:
- Motor coaches with seating capacity not less than 28 passengers
seats and used for public transport service;
- Lorries; and
(d) The exemption of import or supply of the following goods takes effect from
‐ Machinery and equipments for leather or footwear industry, classified under HS
Codes.8453.10, 8453.20 and 8453.80;
‐ High-tech medical, laboratory and educational equipments classified under HS
Codes 8479.89.10 and H S Headings 90.01 through 90.33;
‐ Taxi Meters classified under H S Code 9029.10.10;
- Agricultural machinery and parts classified under H S Codes 7309.00.10, 8479.89.30,
7308.90.10, 8479.89.40, 8433.11, 8433.19 and 8433.90
‐ Electrical equipments classified under H S Codes 8414.51, 8516.32, 8516.33,
8516.50, 8516.60.10, 8516.90.10, 8516.71, 8516.72, 8516.79.20, 8517.11,
8521.10, 8521.90, 8527.91, 8527.92, 8528.72.41, 8528.72.91, 9101.91, 9101.99,
9105.11, 9105.19, 9105.21, 9105.29, 9105.91, 9105.99, and 9207.10 ; and
‐ Articles use for Fashion Jewellery manufacturing, classified under H S codes
3926.90.70, 7018.10 and H S Headings 28.43, 71.13, 71.14, 71.15, 71.16 and
(e) The exemption of the import of following goods takes effect from 01.01.2011
‐ Goods to any infrastructure development project funded through foreign loans
or donations directly to government ministries, as approved by the Minister of
- Machinery and High tech equipments for the use of telecommunication industry,
classified under H S Codes 8443.32.40, 8517.12.90, 8517.18, 8517.61,
8517.62.10, 8517.62.90, 8517.69, 8517.70, 8523.52, 8536.69.10, 8536.69.90,
8536.90.10, 8536.90.90, 8544.11.90, 8544.19, 8544.70; and
- Aircraft stimulators and parts classified under H S Codes 8805.21 and 8805.29.
4. Relaxation of the restriction on the deduction of input VAT credits.
The relaxation of present restriction (on the deduction of VAT input credits) from ‘85% of the
output VAT’ to ‘100% of the output VAT’ will be applicable to any valid claim made on or
after 01.01.2011 in relation to any tax invoice or customs declaration.
Any unabsorbed VAT inputs as at 31.12.2010 calculated under the respective provisions of the
VAT Act will be deductible from any output VAT in each taxable period commencing on or
after 01.01.2011 subject to
‐ a limit of 10% of the total undeducted inputs outstanding as at 31.12.2010; and
‐ total input credits (including inputs after 31.12.2010) not exceeding 100% of the
In case where the supplies are exempt from VAT or not liable to pay VAT for any other reason
after 31.12.2010, such unabsorbed VAT input credits could be deductible as an expenditure in
computing profits/losses for income tax purposes under the provisions of the Inland Revenue
5. Changing the period of returns
(a) For registered persons other than the zero rated suppliers
Furnishing Returns will be on quarterly basis and payments on monthly basis, effective
from the quarter commencing on 01.01.2011
(b) Suppliers of Financial Services
Bi-annual returns with payments on monthly basis, effective from the period of
6 months commencing 01.01.2011.
6. VAT Suspension Scheme
(a) The present VAT suspension scheme operated through Textile Quota Board (TQB) and
Export Development Board (EDB) will be brought under the Commissioner General of
Inland Revenue and operated effective from April 1, 2011, with relevant Guidelines
issued in advance.
(b) The proposed categories of suppliers will also be covered within this new scheme to be
operated under the Commissioner General of Inland Revenue.
7. Other main Changes
(a) Time bar relating to assessments
The present time bar provisions relating to fraud or willful evasion is removed.
(b) VAT advance payments (WHT)
The present provisions referred to in section 26A of the VAT Act are discontinued.
Accordingly, the Government Institutions are not required to retain VAT from the
payments made under any contract agreements.
(c) Penal provisions
Penal provisions will be introduced for non-payment of VAT on self assessment basis in
installments, and the non submission of return for VAT on Financial services.
(d) 15 day Refunds
Provision for making refunds to the specified category within 15 days will be removed
effective from April 1, 2011, with the introduction of the proposed new VAT suspension
For any clarification, please contact:
VAT Unit - Tel: 011 - 2338541, 011 - 2338924, 011 – 2338591
Taxpayer Service Unit - Tel: 011 - 2328702, 011 - 3009040, 011 – 3009048
Secretariat Branch - Tel: 011 - 2338543, 011 – 2338635
Inland Revenue Web Site: www.inlandrevenue.gov.lk
Commissioner General of Inland Revenue
TAXES - FOR A BETTER FUTURE