VAT Bill was passed in Parliament on 23 October 2019 which is yet to be certified by the Hon. Speaker
1.Supply of residential accommodation
Effective from April 1, 2019, the supply of condominium housing is liable to VAT unless exempted.
Exemptions
a)The supply of a condominium housing unit of a condominium housing project and the maximum price or the market value (whichever is higher) of any single unit of that project does not exceed LKR. 25 million.
b)The supply of a condominium housing unit and where there is an agreement to sell in respect of such supply which is executed in terms of the Notaries ordinance prior to the date of commencement of the (Amendment) Act*.
c)The supply of a condominium housing unit of a condominium housing project in respect of which a Certificate of Conformity has been issued by the relevant Local Authority prior to the date of commencement of this (Amendment) Act* in respect of such supply.
*The date of commencement of the Act is generally the date at which the Act is certified by the Speaker. At the time of sending this tax alert, the Speaker had not certified the Act.
Rate
The apartments which are liable for VAT will be charged with VAT at a rate of 6%. It is expected that a Gazette will be passed giving effect to this lower tax rate.
The effective date of the application of this 6% tax rate (i.e. April 1, 2019, or otherwise) is expected to be gazetted as well. It is uncertain whether a taxpayer has the option of choosing between the 6% rate and the normal 15% rate. The wording in the amendment suggests that there is an option, however, this could only be concluded once the relevant Gazette is issued.
Input tax
Any person who accounts for output tax at the rate of 6% is entitled to deduct as input tax in relation to such supplies as are allowable under the VAT Act only at the rate of 5% even where such person has paid the input tax at a higher rate than 5%.
The claiming of 5% too is subject to the normal rules of claiming input VAT. Therefore, the taxpayer should have a VAT registration and a duly issued tax invoice to claim the input VAT at 5%.
2.VAT payment dates
VAT is currently payable every fortnight by everyone other than manufacturers.
However, from taxable periods commencing October 1, 2019, VAT is payable only once a month (on or before the 20th of the following month).
3.Introduction of a new method to value the goods imported
The value of specified goods will be prescribed. These specified goods have not been gazetted yet.
4.Construction Contractors
Any goods supplied by any construction contractor to be utilized on a construction project carried out by such contractor outside Sri Lanka shall be deemed to be goods exported by such contractor.
5.Domestic sale of garments by the export-oriented BOI companies
LKR. 75 per garment has been increased to LKR. 100 per garment (other than panties, socks, briefs and boxer shorts).
LKR. 75 per 6 pieces has been increased to LKR. 100 per 6 pieces of panties, socks, briefs and boxer shorts.
6.Expansion of exemption on locally produced rice products
In addition to locally produced rice products containing rice produced in Sri Lanka, locally produced rice bran oil made out of locally produced rice will be exempted from VAT.
