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Amendments to the Value Added Tax Act No of

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					              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
              from 23.11.2010.
       (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
       Optional VAT.
       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.

                                        Duration                                       Rate
             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
            26.11.2010:
             ‐       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
                          - Tractors.


       (d) The exemption of import or supply of the following goods takes effect from
            01.01.2011
                 ‐   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
                    71.17.

       (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
                    Finance;
               -    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
                   output VAT.

     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
     Act.

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
                scheme.

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

 

				
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