Business
Special goods and services tax: Issues and concerns
By Dr Roshan Perera & Naqiya Shiraz
The new bill titled ‘Special Goods and Services Tax’ was published by gazette dated 07 January 2022.1 The Special Goods and Services Tax (SGST) was originally proposed in Budget speech 2021 but was not implemented. It has once again been presented in Budget 2022. The SGST aims to consolidate taxes on manufacturing and importing cigarettes, liquor, vehicles and assembly parts, while also consolidating taxes on telecommunication and betting and gaming (see table 1 for existing taxes on these products and table 2 for taxes consolidated into the SGST as per the schedule in the gazette). The rationale for this new tax as per the bill is “…to promote self-compliance in the payment of taxes in order to ensure greater efficiency in relation to the collection and administration on such taxes by avoiding the complexities associated with the application and administration of a multiple tax regime on specified goods and services.”
Given the multiplicity of taxes and the complexity of the current tax system as a whole, rationalising taxes is necessary to improve collection. However, whether the proposed SGST simplifies the tax system, while ensuring revenue neutrality or even improving revenue collection, needs to be carefully examined.
The SGST Bill is silent on the treatment of the existing VAT on these goods and services. However, according to the Value Added Tax (Amendment) Bill also gazetted on 07 January 2022,1 liquor, cigarettes and motor vehicles will be exempted from VAT while telecommunications and betting and gaming services will still be subject to VAT.
While the gazetted Bill sets out some of the features of the proposed SGST there are many important areas not covered in the Bill. These are expected to be gazetted as and when required by the Minister in charge.
Issues & Concerns
The motivation behind SGST is the simplification of the tax system. Although the objective of introducing the SGST is to improve efficiency by reducing the complexity of the tax system there are many issues and concerns with this proposed tax.
Revenue
Tax revenue which was 13% of GDP in 2010, declined to 8% in 2020. Ad hoc policy changes and weak administration contributed to the decline in tax revenue collection. This continuous decline in tax revenue has led to widening fiscal deficits and increasing debt. One of the main reasons for the current macroeconomic crisis is low tax revenue collection. Hence, any change to the existing tax system should be with the primary objective of raising more revenue.
According to the budget speech the SGST is estimated to bring in an additional Rs. 50 billion in revenue in 2022.1 Revenue from taxes proposed to be consolidated under the SGST has significantly declined over the past 3 years. Given the already difficult macroeconomic environment, along with ad hoc tax policy changes raising the additional revenue estimated at Rs. 50 billion seems a difficult task.
Tax Base and Rate
For the SGST to raise taxes in excess of what is already being collected through the existing taxes, the rate and the base for the SGST needs to be carefully and methodically calculated. Further, the existing taxes have different bases of taxation. For instance the basis of taxation of motor vehicles is both on an ad valorem1 basis and a quantity basis while the basis of taxation of cigarettes and liquor is quantity.2 In light of this, the basis of taxation on which SGST isapplied becomes an issue. Having different bases and different rates for various goods and services would complicate the implementation of the tax These issues need to be carefully considered to ensure the new tax is revenue neutral or be able to enhance revenue collection.
Efficiency
One possible revenue benefit of this proposal is the inability to claim input tax credits on the sectors exempted from VAT. However, the issue is the cascading effect that would result where there would be a tax on tax with the end consumer paying taxes on already paid taxes. If the idea was to raise additional revenue by limiting tax credits, it would have been simpler to raise the tax rates on the existing taxes rather than introduce a new tax.
4. Administration
According to the bill, SGST will now be collected through a new unit set up under the General Treasury where a Designated Officer (DO) will be in charge of the administration, collection and accountability of the tax. The existing revenue collection agencies, such as the Inland Revenue Department (IRD) or the Excise Department will not be primarily responsible for the collection of this tax. By removing the IRD and Excise Department, a parallel bureaucracy will be created, at a time when public spending needs to be carefully managed. The General Treasury also has no previous experience and expertise in direct revenue collection. Weak administration is one of the key reasons for the low tax collection and success of this tax would depend on the strength of its administration.
In addition to the above mentioned concerns, as per the Bill the minister in charge of the SGST has been vested with the power to set the rates, the base and grant exemptions. Accordingly, Parliamentary oversight over fiscal matters is weakened under this proposed Bill.
It could also lead to a time lag between the gazetting and implementing of changes to the SGST (such as the rate, base etc) and obtaining Parliamentary approval for those changes.
Dispute resolution
The SGST Bill also focuses on the dispute resolution mechanism. Under the present tax system, with the enactment of the Tax Appeals Commission Act, No. 23 in 2011 the Tax Appeals Commission has the “responsibility of hearing all appeals in respect of matters relating to imposition of any tax, levy or duty”.1 The most recent amendment to the Tax Appeal
Commissions act (2013)1 seeks to address the large number (495) of cases pending before the Tax Appeals Commision2 by increasing the number of panels to hear the appeals.
Under the proposed SGST disputes will be handled through the court of appeal. However, the time period by which specific actions need to be taken is not provided in the bill. In addition, disputes have to be taken to the court of appeal. Hence, the entire process will be more time consuming. This could result in revenue lags and difficulties in revenue estimation until disputes are resolved.
Additionally, in the case that no valid appeal has been lodged within 14 days, any remaining payments would be considered to be in default. Thereafter, the responsibility is shifted to the Commissioner General of the IRD to recover the dues. Given the IRD is completely removed from the normal collection process, the rationale for bringing defaults under the IRD is not clear.
III. Policy Recommendations
As discussed, the SGST Bill has several limitations and much of this is due to the ambiguities in the Bill.
If the tax is implemented, the rate and basis of taxation needs to be revenue neutral to ensure tax collection is maximised and administrative costs minimised.
The rates, basis of taxation, exemptions etc should be specified in the Bill, as done in most other Acts. This would avoid the power for discretionary changes to the tax being placed in the hands of the minister in charge.
Given the already weak tax administration, it would be more sensible to strengthen the existing revenue collecting agencies and address the weaknesses in the existing system without creating a parallel bureaucracy.
In the case where VAT is consolidated into the proposed GST, the issue of cascading effect of input tax credits needs to be addressed. This is relevant particularly in the case of capital expenditure.
Given the critical state of revenue collection in the country the question to ask is whether this is the best time to introduce a new tax. Focus should be on fixing issues in the existing tax system to ensure revenue is maximised. The VAT is the least distortionary tax and it is the easiest to administer. Given these features it can be a very efficient revenue generator for a country. Therefore instead of introducing a new tax, capitalising on systems that are already in place and amending the VAT rate, threshold and exemptions may be a more practical solution to the revenue problem that the country is currently facing.
Dr. Roshan Perera is a Senior Research Fellow at the Advocata Institute and the former Director of the Central Bank of Sri Lanka.
Naqiya Shiraz is a Research Analyst at the Advocata Institute.
The opinions expressed are the author’s own views. They may not necessarily reflect the views of the Advocata Institute, or anyone affiliated with the institute.
‘The late Mangala Samaraweera was a true democrat who staunchly opposed racism in all its forms. He was also against corruption. He was a unique person, an achiever, an artist, a creative person, well-read and practical-minded, former President Chandrika Bandaranaike Kumaratunga said. She believes that if Mangala Samaraweera (MS) lived, Sri Lanka would have been changed entirely for the better.
The former President was speaking at a special Mangala Samaraweera commemorative event held at the auditorium of the Bandaranaike Centre for International Studies (BCIS), Colombo on April 22nd, which featured the donation of Minister Samaraweera’s wide-ranging and abundant private collection of books to several Sri Lankan libraries, including that at the BCIS and the Colombo Public Library.
The programme was termed, ‘Reading with Mangala: Insights into his Personal Library and its Onward Gifting to His Fellow Sri Lankans.’ The event marked MS’ 69th birthday.
The book donation was facilitated by the family of the late minister which coordinated closely with the BCIS to make the event a success. Besides former President Kumaratunga, the event was graced by the BCIS Council of Management, public personalities, associates and colleagues of the former minister, BCIS staffers, students and well-wishers.
At the outset of the commemoration, MS was introduced eloquently and at some length to the audience by the late minister’s niece, Chanchala. MS came across to us, basically, as a multi-talented, well-read, colourful and knowledgeable personality. A resourceful person who could change things for the better.
In a panel discussion featuring many dignitaries on Mangala the person and the public figure, former President Chandrika Bandaranaike Kumaratunga mentioned the following as well: ‘Mangala had a vision for the country as a public figure and conceptualized policies in accordance with it. Among other things, he persuaded the entire SLFP to resolve the ethnic issue by political means.
‘In a survey done by a foreign company it was revealed initially that only 23 percent of the country’s Sinhala community supported a political solution to the ethnic conflict. I asked Mangala to tell me how our ideas could be taken to the public. He launched work on this project with 19 ministers. One positive result from these deliberations was the ‘Sudu Nelum Movement’ which Mangala backed to the hilt.
‘Subsequently, the message of a negotiated solution was taken to the country through innovative means, like Street Theatre and the ‘Thawalama’ campaign. Mangala gave of his best to these projects. Subsequently, in a second survey done it was disclosed that 68 per cent of the people accepted a political solution. Thus, did Mangala’s positive approach pay off. He stuck to his principles and never betrayed them.’
By Lynn Ockersz
Japan is ready to undertake fresh loan projects for Sri Lanka since the country has completed its debt restructuring process, Japanese ambassador to Sri Lanka Akio Isomata said.
“Japan is ready to consider taking on such commitments if there is a request from the Sri Lankan end but the undertaking of such projects depends on Sri Lanka’s debt servicing ability, ambassador Isomata added.
The ambassador made these remarks in response to a query raised during a round table discussion organised by the Pathfinder Foundation recently at the Taj Samudra’s Colombo Club. The theme of the event was, “Japan’s response to the US reciprocal tariffs and Japan- Sri Lanka relations in a turbulent world”. The forum was presided over by Pathfinder Foundation chairman ambassador Bernard Goonetilleke.
The ambassador also said that Japan was a victim of corruption in Sri Lanka and expressed optimism that the government would tackle the issue.
“Earlier, there were reports about some Japanese companies facing issues in Sri Lanka in securing investments. Japanese companies strictly observe compliance obligations and therefore never offer bribes or kickbacks, ambassador Isomata explained. Ambassador Isomata said that he attended the function to mark the launch of the ‘National Anti -Corruption Action Plan’ and listened to President Anura Kumara Dissanayake speaking of efforts to address the issue. The ambassador emphasized the need to implement the plan.
Responding to the President’s remarks that politicians belonging to his National People’s Power (NPP) are not involved in any form of corruption, the ambassador said it is equally important to address the same involving Sri Lankan bureaucrats.
Commenting on Japan- Sri Lanka bilateral relations, Isomata said Sri Lanka is a very important partner for Japan in many ways.” As Sri Lanka’s economy is in the process of getting back on track with efforts underway to implement the IMF agreement, along with the debt restructuring agreement, I don’t think Japanese companies will come immediately to make new investments at this stage. But as the Sri Lankan economy goes back on track in a stable manner, I think we can cultivate the interest of Japanese investors to take a closer look at opportunities in Sri Lanka for further investment. We need cooperation with Sri Lankan people, he said.
The ambassador added: “We are seeing increasing numbers of young Sri Lankans going to Japan for employment in Japanese companies. There are two kinds of programmes for inviting young foreign workers into Japan right now.
“One is called the TITP -Technical Intern Training Programme. The second one, recently started, is SSW -Specified Skilled Worker Programme. Under these two programmes, an increasing number of Sri Lankan youngsters are going to Japan right now. We have opened up eight industrial sectors for Sri Lankan workers, starting with caregiving, hotel accommodation, food industry, agriculture, construction and most recently, the transportation sector, like bus driving and truck driving. This will strengthen Japan’s labour market. We need a young labour force because Japan is facing the problem of an ageing society.”
By Hiran H Senewiratne
The SLT Group has reported a Profit After Tax (PAT) of Rs. 2,001 million for the first quarter ended March 31, 2025, a surge from Rs. 156 million in Q1 2024, reflecting effective financial management and improved operational efficiency.
SLT Group demonstrated strong performance for the first quarter of 2025, with revenue increasing 3.4% to Rs. 27,851 million. The growth was primarily driven by Mobitel’s contribution of increased revenues while SLT PLC revenue remained stable.
The Group’s cost optimization initiatives continued to yield positive results, with operating expenses decreasing 2.9% amount to Rs. 710 million compared to the same period last year. The reduction, combined with revenue growth, led to a 13% increase in EBITDA to Rs. 10,443 million.
At company level, SLT PLC reported a marginal 0.7% increase in revenue of Rs. 117 million compared to Q1 2024, primarily driven by growth in enterprise, small and medium enterprises (SMEs) and broadband streams.
SLT PLC also achieved significant cost declines, with operating expenses decreasing 5.2% amount to Rs. 838 million Year-on-Year (YoY). Notably, electricity expenses fell 38.3% following tariff reductions in March and July 2024. Vehicle hiring and fuel costs also decreased 22.7%, and repair and maintenance expenses curtailed by 12.5%.
SLT PLC specifically demonstrated impressive profit growth, with PAT increasing by 369.9% to Rs. 1,344 million compared to Rs. 286 million in Q1 2024. The notable performance was supported by a 380% surge in Profit Before Tax (PBT) to Rs. 1,920 million and a 60.3% increase in Operating Profit to Rs. 2,538 million.
Mobitel demonstrated strong financial performance in the first quarter of 2025, reporting notable revenue growth supported by the growth of data services. Total revenue reached Rs. 11.8 billion, reflecting the company’s success in capitalizing on demand for digital connectivity. Enhanced top-line performance, combined with effective cost reduction initiatives, led to a significant improvement in profitability.
EBITDA increased by 28.5%, resulting in a healthy EBITDA margin of 30%. Operating profit (EBIT) also recorded a marked improvement by 392%, with a 7% EBIT margin. PBT saw considerable growth, and the company successfully turned around its financial position, moving from a net loss in the first quarter of 2024 to a net profit of Rs. 477 million in the same period of 2025.
Reaffirming its commitment to delivering superior network experiences and the widest coverage across the island, SLT-MOBITEL Mobile was recognized as the country’s fastest 4G network for 2024 by Ookla®, the global leader in internet testing and analysis at Mobile World Congress Barcelona, held in March 2025.
Leveraging strong Q1 results as a foundation for 2025 growth, the SLT Group aims to continue the ongoing digital transformation journey delivering innovative solutions and expanding services to meet customer needs. Through operational efficiency and digital advancement, investing in advanced technologies to strengthen market position, the Group remains committed to supporting Sri Lanka’s digital economy and creating value for all stakeholders.
Showers or thundershowers will occur at times in Western, North-western, North-central, Central, Eastern, Uva and Sabaragamuwa, provinces and in Galle and Matara districts
Battle for control of CMC rages; SJB draws fire for alleged bid to appoint defeated candidates
Red Cross and Red Crescent Day 2025 celebrated
-
Features3 days agoSAITM Graduates Overcome Adversity, Excel Despite Challenges
-
Latest News7 days agoNPP win Maharagama Urban Council
-
Business6 days agoJohn Keells Properties and MullenLowe unveil “Minutes Away”
-
News3 days agoDestined to be pope:Brother says Leo XIV always wanted to be a priest
-
Sports3 days agoASBC Asian U22 and Youth Boxing Championships from Monday
-
Foreign News4 days agoMexico sues Google over ‘Gulf of America’ name change
-
Opinion6 days agoRatmalana: An international airport without modern navigational and landing aids
-
Opinion3 days agoDrs. Navaratnam’s consultation fee three rupees NOT Rs. 300