Sri Lanka’s SSCL threshold reduction on companies with annual earnings from Rs 60 million to Rs 36 million – which had been passed into law – while the lowering of the Value Added Tax (VAT) threshold on companies from annual earnings of Rs 60 million to Rs 36 million had been halted, is cause for vigilance for auditors and small and medium enterprises which earn between Rs 36 million and Rs 60 million in annual earnings, KPMG Sri Lanka Principal – Head of Tax and Regulatory Suresh Perera said, speaking on Advocata Institute’s YouTube channel.
“There was a last minute policy change where a committee stage amendment was introduced not to bring down the Rs 60 million threshold to Rs 36 million,” Perera said, referring to the widely publicised last minute decision in Parliament.
“Legally, right now the VAT threshold is 60 million, SSCL threshold is 36 million. So two different baskets now. The accountants have to be vigilant, businesses have to be vigilant. They have to be mindful that there are two thresholds and accordingly even if they're not liable for VAT, they have to if they’re liable for SCL they have to pay the SCL and file the return.”
In June, Deputy Minister of Finance and Planning Anil Jayantha Fernando informed parliament that the Government would be delaying implementing the proposal to bring down the VAT threshold from Rs 60 million to Rs 36 million, taking into consideration the impact of Cyclone Ditwah and the Middle East crisis on SMEs.
“If the Government wants to change the SSCL threshold to 60 million instead of 36 million, they have to pass an amendment to the SCL act now. I don’t know whether it will happen. I don’t think so,” Perera said.
Reflecting on the Government’s decision to hold back on lowering the VAT threshold, he said: “So many things contributed. The way the Government put it, we had a bad period due to the ongoing war in the Middle East and so many circumstances. Therefore, the Government thought it’s not prudent at this time to bring down the threshold because this category that is basically from 60 million to 36 million will be subject to this VAT, and that would be difficult for them to manage at this crisis situation. So a short-term decision was taken to give relief to the SME category.”
As the halt on the implementation of lowering the VAT threshold is temporary, tax professionals have flagged that lowering has the potential to have a sizable impact on Sri Lanka’s small and medium enterprises, with regards to compliance.
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