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Sri Lanka raised VAT from 15% to 18% and cut VAT exemptions from 138 to 97 items. Here is the complete list of items that are no longer exempt from VAT.
Sri Lanka's parliament has recently approved legislation to raise the Value Added Tax (VAT) from 15% to 18%. Accompanying this tax hike is the significant narrowing of VAT exemptions, by removing 95 previously excepted goods from the VAT-exempted goods list. This revision is poised to affect both consumers and businesses substantially.
The State Minister of Finance, Ranjith Siyabalapitiya, has acknowledged the possibility of a modest inflation increase, estimated between 1.5% and 2%, as a direct consequence of the tax adjustment. Nonetheless, the more profound inflationary pressure is anticipated to stem from reinstating VAT on goods that were previously exempted. Particularly, imposing VAT on diesel is expected to exert a pronounced impact since diesel plays a critical role in the transportation, agriculture, and manufacturing sectors. The incremental cost of diesel is likely to precipitate a domino effect across the entire economy.
In essence, the amalgamation of the VAT increase and the curtailment of VAT exemptions is expected to lead to escalated prices across a broad spectrum of goods and services. This inflationary trend could squeeze household budgets and potentially hamper economic growth.
Below is the complete list of goods and services that have been removed from the previous VAT exemption list.
Medical machinery or medical equipment identified under the Harmonized Commodity Description and Coding System Numbers for Custom Purposes.
Medical equipment, machinery, apparatus, accessories and parts thereof, hospital furniture, drugs and chemicals donated to a government hospital or the Ministry of Health for the provision of health services to address any pandemic or public health emergency, approved by the Minister assigned the subject of Finance on the recommendation of the Secretary to the Ministry of the Minister assigned the subject of Health.
Health protective equipment and similar products by any exporter, registered with the Board of Investment of Sri Lanka established by the Board of Investment of Sri Lanka Law, No.4 of 1978, to the Ministry of Health and Indigenous Medical Services, Department of Health Services, Sri Lanka Army, Sri Lanka Navy, Sri Lanka Air force and Sri Lanka Police.
Medical equipment, medical machinery or any ambulance.
Packing materials exclusively for the use of packing of pharmaceuticals or ayurvedic medicines manufactured in Sri Lanka and which are imported by the manufacturer of such pharmaceuticals or ayurvedic medicines, so far as such packing materials are not manufactured in Sri Lanka as approved by the Secretary to the Ministry of the Minister to whom the subject of Health is assigned or the Commissioner of the Department of Ayurveda, as the case may be, for this purpose.
Pharmaceutical machinery and spare parts for the pharmaceutical machinery which are not manufactured in Sri Lanka, classified under the Harmonized Commodity Description and Coding System Numbers for Custom proposes, imported by pharmaceutical manufacturers and recommended by the Secretary to the Ministry of Health.
Agricultural machinery, mammoties, forks, chemical fertilizer, artemia eggs and Peat moss, classified under the Harmonized Commodity Description and Coding System Numbers for Custom purposes.
Agricultural tractors and road tractors for semitrailers classified under the Harmonized Commodity Description and Coding System Numbers for Custom purposes.
Locally manufactured machinery used for tea industry and identified by Sri Lanka Tea Board established by the Sri Lanka Tea Board Law, No. 14 of 1975 as a tea machinery.
Prawns.
Frozen bait, fish hooks/rods/reels, fishing tackle and marine propulsion engines identified under the Harmonized Commodity Description and Coding System.
Locally manufactured coconut oil or coco peat, coir fiber, grow pellets, grow bags, twist fiber or coconut husk made out of coconut waste
Unprocessed prawns produced in Sri Lanka including the local supply of unprocessed prawns, where value added tax has not been collected or paid to the Department of Inland Revenue
Locally produced dairy products other than powdered milk containing added sugar or other sweetening matter, out of locally produced fresh milk in so far as such milk is produced in Sri Lanka and locally produced rice products containing rice produced in Sri Lanka and, locally produced rice bran oil made out of locally produced rice
Poultry keeping machinery, poultry incubators and brooders, the import of cattle, buffaloes, poultry, pigs, goats, sheep for breeding purposes and the semen and embryos of such animals for breeding purposes, under the specified Harmonized of Commodity Description Numbers for the Custom purposes, with the approval of the Commissioner-General of Inland Revenue
Sea sand
Solar panel modules, accessories or solar home system for the generation of solar power energy identified under the specified Harmonized Commodity Description Numbers for Customs purposes
Pearls, diamonds, natural or synthetic, precious or semi-precious stones, diamond powder, precious metals, metals clad with precious metals, gold coins
Books magazines, journals or periodicals (other than newspapers) for any period on or after November 11, 2016 under the Harmonized Commodity Description and Coding System Numbers for Custom purposes; and unused postage and revenue stamps of the Government of the Democratic Socialist Republic of Sri Lanka or of a Provincial Council
Machinery used for construction industry, milk processing machinery, computers including computer accessories, machinery and yarn used for textile industry as identified under the Harmonized Commodity Description and coding System Numbers for custom purposes and, and machinery used for rice milling industry which are identified by the Commissioner General of Inland Revenue under Harmonized Commodity Description and Coding System Numbers for Custom purposes
Plant and machinery by a company, for the use in a new undertaking by such company in any District other than Colombo and Gampaha as having a capital investment of not less than rupees thirty million and the other criteria specified in section 20 of the Inland Revenue Act for the purposes of the Tax Holiday
Media equipment or motor bicycles recommended by the Secretary to the Ministry of the Minister in charge of the subject of Media and approved by the Minister, for use by media personnel.
Machinery and equipment for manufacture of grain mixed bakery products.
Machinery and equipment for manufacture of grain mixed bakery products; machinery and equipment for the use of leather or footwear industry or bags, motor homes, taxi meters, agricultural machinery and parts, electronic equipment or articles used in the manufacture of fashion jewellery; fruit seeds.
Plants, machinery or accessories for renewable energy generation identified under the Harmonized Commodity Description and Coding System Numbers for Custom Purposes.
Clay roof tiles or chemical naptha, to the extent that such clay roof tiles or chemical naptha are manufactured in Sri Lanka.
Locally manufactured sugar.
Locally manufactured jewellery.
Locally manufactured: (a) hydropower or wind power machinery and equipment; (b) turbines; (c) products using locally procured raw materials for the required specification of tourist hotels or airlines; manufactured in so far as such products are locally value-added products, as per the conditions specified in the guidelines issued for this purpose.
Locally manufactured fabric in the domestic market by any manufacturer who does not enjoy any concessions under any agreement entered into with the Board of Investment of Sri Lanka.
Rattans under HS Code No. 1401.20.
Imported rattans.
Locally manufactured briquettes and pallets using biomass wastes.
Locally developed software.
Locally manufactured palmoil
Machinery for the manufacture of biomass briquettes and pallets, so far as such machinery is imported by the manufacturer of such products classified under the Harmonized Commodity Description and Coding System Numbers for customs purposes. plant, machinery or equipment by any enterprise qualified for a tax exemption under section 16 D and17 A of the Inland Revenue Act, No.10 of 2006 , for the use by such enterprise for the purposes specified in the agreement entered into with the Board of Investment of Sri Lanka on which tax is deferred during the project implementation period, subject to the fulfillment of the conditions specified in the agreement, during the project implementation period;
Services by Tower Hall Theatre Foundation established by the Tower Hall Theatre Foundation Act, No. 1 of 1978 or Cultural Fund established under Central Cultural Fund Act, No. 57 of 1980.
International telecommunication services provided by "External Gateway Operators" to local telecommunication operators.
Public library service by the Government, Provincial Council, or a local authority.
Services being chartering of any vessel.
Services being receipts from reinsurance by any local insurance company by way of commission or compensation in an insurance business.
Services, being research and development services provided by the supplier of such services within the meaning of the Inland Revenue Act, No. 10 of 2006 for the purposes of deduction under section 25 of that Act.
Painting, at the point of sale, by the artist thereof.
Specific services for any international event approved by the Minister of Finance having taken into consideration the economic benefit to the country by conducting such an event in Sri Lanka.
Services, which result in the improvement of quality, character, or value of any yarn, fabric, or garment so far as such services are provided to persons other than exporters of such products.
Services by a Unit Trust Management company so far as such services are provided to any Unit Trust.
Services being hotel accommodation to any sportsman, organizer of any sport event, or sponsor arriving in Sri Lanka for participating in any sport event or activity connected with sports, as may be approved by the Minister who is in
charge of the subject of Sports;
Services by any headquarters or regional head offices of institutions in the international network relocated in Sri Lanka as exempted for income tax purposes under section 7 of the Inland Revenue Act, No. 10 of 2006, so far as such receipts are in foreign currency received;
Services in respect of inbound tours, by a travel agent registered with the Sri Lanka Tourism Development Authority.
Any goods, (other than motor vehicles and goods for personal use required for the purpose of provision of services being international transportation which is consigned to Sri Lankan Air Lines Limited, Mihin Lanka (Pvt) Ltd. Or Air Lanka Catering Services Ltd;
Gully bowsers, semi-trailers for road tractors, any machinery or equipment used for garbage disposal activities carried out by any local authority, for the purpose of provision of such services to the public, as approved by the Secretary to the relevant Ministry;
The import and supply of goods at duty free shops for payment in foreign currency.
The import and supply of goods at duty free shops for payment in foreign currency.
The supply of any goods or services provided prior to November 1, 2016, by any society registered under the Co-operative Societies Law, No. 5 of 1972, or under the respective Statutes enacted by the Provincial Councils providing for such registration, or Lak Sathosa registered under the Companies Act, No. 7 of 2007 ;
The supply of services, being construction services for Gama Naguma, Maga Naguma, Samurdhi Projects or for community irrigation projects, carried out through the participation of the community and approved by Secretary to the Minister of the Minister in charge of the subject of Nation Building and State Infrastructure Development.
Goods or services by an institution set up by the Ministry of Defence for the rehabilitation of disabled soldiers, in so far as the activities are carried out by the participation of such soldiers.
The supply of goods or services by any individual who is a citizen of Sri Lanka and who carries on any business of manufacturing of any article other than any liquor or tobacco product or supply of any services after returning from a foreign employment for a period of five years reckoned from the beginning of the year of assessment in which such business commences if such individual invests his earnings from such foreign employment to commence such business
The supply of goods or services by any individual who is a citizen of Sri Lanka and who carries on any business of manufacturing of any article other than any liquor or tobacco product or supply of any services after returning from a foreign employment for a period of five years reckoned from the beginning of the year of assessment in which such business commences if such individual- returns from such foreign employment on or after January 1, 2013; and invests his earnings from such foreign employment to commence such business.
Local supply of any goods [other than goods referred to in paragraph (c)], which would have been exempted on importation, if imported.
(Locally supplied) any goods which would have been exempted on importation, if imported.
Goods for any international event approved by the Minister of Finance taking into consideration the economic benefit to the country, by conducting such event in Sri Lanka.
Any capital items required for the purposes of providing training by any institution providing vocational training or practical training approved by the Minister in charge of the subject of Tertiary Education and Training in consultation with the Minister where the Government has provided funds or other assistance to such institution and the surplus funds of such institution are re-invested as to the maintenance or improvement of such institution.
Goods to any project approved by the Commissioner-General, as having a capital investment of not less than rupees one hundred million which are considered as project related capital goods, other than the goods in the negative list published by the Secretary to the Treasury, during the project implementation period which shall not exceed three years from the commencement of the project, provided that such project makes taxable supplies upon the completion of the project.
Machinery, equipment or spare parts imported by Sri Lanka Ports Authority to be used exclusively within the ports of the Sri Lanka Ports Authority.
Hot air balloons identified under the Harmonized Commodity Description and Coding System Numbers for Custom Purposes.
Free or subsidised meals by an employer to his employees at their places of work and transport free or at a subsidised rate by an employer to his employees using a motor coach between the place of residence and work place of such employees.
Imported unprocessed timber logs, ships or rattans.