Will Sri Lanka implement increased VAT rate?

Sri Lanka’s Ministry of Finance have recently announced that they will be increasing the current VAT rate of 11% to 15% as of 2nd May 2016. This announcement causes some confusion and doubt as similar recent proposals have been scrapped at the 11th hour. In 2015 it was announced that from the 1st January 2016 the flat rate of 11% would be replaced by 3 different tax rates;

1. All Services to be subject to 12.5% VAT
2. All Goods to be subject to 8% VAT
3. The export of all Goods and Services for foreign currency receipt, subject to 0% VAT.

However, this proposed implementation was reversed on the 1st January 2016 with the decision made for the existing 11% rate to remain in place.

Since then discussions have centred around the idea of introducing a flat rate for VAT of 15% which would be applied across the board and even to all supplies that are currently exempt. Yet the original implementation date of this decision (1st April 2016) has already been postponed to 2nd May 2016.

These VAT rate changes, along with other tax hikes, are being put into place in order to help reduce government deficit, which has been hit by increased levels of borrowing, falling oil prices and international economic turmoil.

With the Government seemingly indecisive on their policy changes it remains to be seen if these changes will actually be implemented. But for now it’s best for businesses to be prepared in case it does go ahead.