Saturday, February 9, 2013

Do people realize that the Govt. miscalculated who will suffer with the VAT?

As usual the policy makers in Govt. made a very bad assumption in their bid to tell their master the President that there was another painless way of raising some taxes without people feeling it. They said we will collect the 12% VAT on vatable sales from large retailers that have a turnover of over Rs500M a quarter, which only accounts for 4 retailers with point of sales systems where the vatable sales can be easily calculated and assessed to a degree of accuracy that is acceptable. The Govt expects to rake in an additional Rs5B per annum from these retailers.

As they explained to their boss, Sir they are rich they can pay and their owners are also rich so they will not feel a small reduction in their profits, which will be an indirect tax that we will raise. So sir your Rs10B that you spend in a year in your personal capacity will be somewhat subsidized from this tax.

So what does our easily praised President say? Son what a superb idea, and for that I will give you a free car permit and permission to collect the bribe of Rs400M for giving the Banking License to Food City for their new bank! You earned it putha!

What is the reality of this VAT imposition? Food City is Mad that the Govt. screwed them after giving a Rs400M bribe to get a Banking License on top of the higher Fees paid officially for this license. The Govt. snookered them royally. So they decided along with the other big boys to take revenge.

They said that there is no way they can increase the MSRP that is on the packaging of their products, as their customers will desert them and go to the smaller shops that do not charge VAT. They proclaimed virtuously that they will absorb the VAT as a cost which will substantially eat into their profits, as that sounds good PR.

What did they do in reality? They demanded that the suppliers, who already offer the lowest prices to Food City to reduce their prices further, submit VAT invoices so that Food City will be able to offset input VAT against their VAT on final sales. At the time of writing the large suppliers such as UNILEVER are balking at this request and they have the muscle to withhold sales to Food City and reach an amicable settlement which will eventually see some sharing of the cost between the two, and now the horse-trading is as to who should share what!!

The small supplier of biscuits, yogurt or chocolates is royally screwed. They have been forced to reduce their prices as they sell a large percentage of their products through these large chains, and the President is blissfully unaware of the damage!

The people of Sri Lanka will eventually foot the bill as there are NO special offers of value at Food City or other chains such as Keells like there were in December. So for example the Nestomalt that was reduced to Rs225 for three months to 31st December is now at Rs255 forcing the customer to pay more for that brand which is the MSRP anyway and is the same as the corner store now. That is an example of the Customer indirectly paying for the VAT imposition.

It must be remembered that the big retailers due to their clout of bulk purchases has been able to force suppliers to give bigger discounts to them. The international classic bully boy tactics by big retailers throughout the world. Worse they ask for 60 to 90 day credit and often sell products at zero profit, to keep their machines running at capacity and make profits on sales to other customers.

It is these very same struggling small companies who have been asked to reduce prices further, something that is GOING to increase losses, lead to JOB LOSSES, stop further investment and expansion of EMPLOYMENT and generally DEPRESS the economy. Thanks to the pundits in the Sri Lankan Government and Treasury trying to IMPRESS.

In life there is no free lunch except of course to people in power. The poorest people eventually pay the highest price for these schemes. So the VAT imposition is another TAX ON THE POOR.

When will the 1500 cronies created by the Govt. and who have made Billions begin to pay taxes? That is what the people of Sri Lanka must ask the President. The problem is they are the Government!


  1. I was a small time VAT payer and Inland revenue closed my file. I just asked the officer how many files will be closed ? He told me about 14,000. If I take a value of Rs 50,000 as average VAT collected by the VAT branch per month per file ---- the revenue loss would be 700 million !!!!!! (14,000 x 50,000) or more

    Thank you Mahinda Chintanaya

    Donald Gaminitillake
    let us change the standard

  2. thank you Donald. What kind of business were you? a manufacturer or retailer? and when you paid VAT what was the input Vat you could deduct before making the final output payment? Have you been able now to charge less to your customers and therefore get more sales revenue as you do not have to charge vat on sales anymore?

    I agree by increasing the Revenue for VAT thousands of files were closed before this reimposition for these few.

  3. I cannot raise invoices with VAT for my services
    A person who paid 112,000 now pay me 100,000
    I wish still I could invoice at 112,000 but the other parties are too VAT payers.
    So they will have to pay me - 12%
    Technically less 12%
    I am not a manufacturer or retailer

    I was an individual VAT payer (very few in Lanka)

    Donald Gaminitillake
    Let us change the standard