• Sri Lanka's decision to remove exemptions from the Value Added Tax (VAT) is projected to yield significant fiscal benefits, with an anticipated recovery of at least Rs. 200 billion in revenue in 2024.

Sri Lanka anticipates a substantial fiscal boost in 2024, with the removal of exemptions from the Value Added Tax (VAT) projected to generate at least Rs. 200 billion in revenue, according to a Finance Ministry official. Tax Policy Adviser Thanuja Perera highlighted before the Committee on Ways and Means the significant impact of eliminating VAT exemptions, which had previously amounted to 1.2% of the country's GDP. These exemptions, categorized into Board of Investments (BOI) and Non-BOI sectors, totaled Rs. 554 billion and Rs. 447 billion, respectively, in the fiscal year 2022/23. With the majority of exemptions now abolished, including those previously extended to sectors such as agriculture, apparel, and tourism, Sri Lanka aims to bolster its revenue streams, although recovery may fall short of the initial projection due to inherent challenges in accurately assessing input claims and tax expenditure.

Furthermore, Perera emphasized that while the removal of exemptions is expected to yield significant revenue gains, the actual recovery may not fully match the projected amount of Rs. 200 billion. Challenges persist in accurately measuring input claims, particularly concerning transactions with both VAT registered and unregistered suppliers. Despite these complexities, Sri Lanka remains optimistic about the fiscal benefits of eliminating VAT exemptions, underscoring the government's commitment to strengthening its revenue base and promoting fiscal sustainability.

Rs. 200 b to be earned from VAT exemption removal | The Morning