JAAF lauds simplified VAT scheme

Joint Apparel Association Forum Secretary General (JAAF) Tuli Cooray provided insights to the apparel industry, which focuses on implementing a scheme pertaining to trade facilitation measures which have been introduced by the Government to ensure the realization of the export objectives of a value-added economy.

He was speaking at a seminar on the Simplified Suspended VAT Scheme in Colombo recently which was attended by large number apparel sector members.

“VAT is based on a destination principle; it is chargeable where the supply is affected or the Value Addition takes place. However, VAT is a neutral tax as far as exports are concerned, hence exports were zero rated and input VAT is to be refunded. Thereby, domestic distortions arising from the VAT system is removed as far as exports are concerned.

Consequently, imported inputs for export processing, including that of VAT applicable on capital equipment were either differed or excluded. Because of this principle, the import substitution of inputs for export processing could have been hampered if this principle continued to apply.

In this scenario the tendency to import would be higher than procuring from the domestic market because of the incidences of VAT liability of such local input purchases. Importance of the concept of suspended VAT emerges at this point”, he said.

Cooray said this rationale for introducing a suspended-VAT scheme for local suppliers thus becomes an essential prerequisite for the achievement of the objectives of creating value added exports within the economic growth agenda of the country.

Firstly the system shifted from cash payments to a paper-based system. Secondly, the identification of eligible company became the pivotal point in place of a specific activity, i.e. identification of an eligible company to procure goods and services on a Suspended-VAT basis”.

The eligible companies include exporters, indirect exporters and value-added service providers. Any of these companies, if proved to the satisfaction of the Commissioner General of Inland Revenue that they are exporting directly or indirectly with more than 51 percent of its turnover, then they can procure any local input on a Suspended-VAT basis without spending a cent.