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Sri Lankan VAT Rate Cut To Support Manufacturers

by Lorys Charalambous, Tax-News.com, Cyprus

03 December 2014


Fitch Ratings has said that Sri Lanka's decision to cut the value-added tax rate by one percent will support domestic manufacturers.

The ratings agency said, with improvement in their purchasing power, Sri Lankan consumers are increasingly looking to upgrade to new, more efficient consumer electronics and household white goods. Fitch believes that a recovery is likely for the consumer durables sector in Sri Lanka in 2015.

The agency said: "The consumer durables industry faced a challenging environment in 2013 due to pressure on disposable income and introduction of the VAT, which retailers found difficult to pass on to consumers leading to a negative impact on margins." Fitch now expects retailers of consumer durables to achieve modest revenue growth supported by increasing consumer purchasing power following a 25 percent reduction in domestic electricity tariffs from September 2014 and the newly lined up cut to VAT from 12 percent to 11 percent in 2015.

The announcement of the rate cut, in the 2015 Budget, followed shortly after the introduction of a new VAT Act from January 1, 2014, which, among other changes, removed a number of exemptions for imported goods and in particular agriculture and manufacturing sector inputs. At the same time the VAT registration threshold for wholesale and retail businesses was reduced markedly from RS400m (USD3m) per quarter to RS250m (USD1.9m).

TAGS: environment | tax | business | value added tax (VAT) | Sri Lanka | tariffs | manufacturing | retail

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