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Secretariat
14th Floor
Inland Revenue Building
Sir Chittampalam A Gardiner Mawatha
P.O. 515, Colombo 2 - Sri Lanka
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011- 2135402/2135410/21354121
2135413/20135411
[email protected]
Web: www.ird.gov.lk
SEe 2015/09
29.12.2015
Value Added Tax (VAT)
Amendments to the VAT Act as proposed in the Budget 2016
VAT Rate Change - Effective from 01.01.2016
Changes to the VAT, as announced in the Budget 2016 on 20.10.2015, are effective from
01.01.2016, pending formal amendments being made to the Value Added Tax Act No. 14 of
2002.
This circular intends to provide with clarification on how to make transitional adjustment due
to the change in the VAT rate from 11% to the rates set out in the Table below.
Rate
Category
Higher
Rate
Standard
Rate
Zero
Rate
Type of Supply
Provision of service
Output
VAT Rate
12.5%
Tax Fraction of a
Commercial Invoice
1/9
Supply of goods
Export of goods
Provision of service
outside Sri Lanka
for
payment
ill
foreign currency
8%
2/27
0%
-
Tax
Input
Restriction
No input tax
restriction
If input tax is
paid at 12.5%
such
part
be
restricted to 8%
tax
No
input
restriction
Provision of Financial Services also falls under the category of higher rate which is liable to
the VAT at the rate of 12.5%.
The following transitional
Standard Rates.
(1) The application
provisions should be noted, on supplies liable at Higher and
of the rate should be based on the time of supply.
If the time of supply falls prior to 01.01.2016 even though the invoice is raised on or
after 01.01.2016, the rate applicable should be 11%.
This may arise on the following circumstances.
The time of supply is the earliest of:
Date of invoice;
Date of payment;
Date of receipt of payment/advance; or
Date of delivery of goods or performance of services (if invoice is
issued within 10 days then that date of supply is such date of
invoice). Accordingly, if the 10 days period falls after December
31, 2015, the applicable rate of VAT on the tax invoice raised
would be either 12.5% or 8% [or otherwise the calculation is by
using the tax fraction (where a tax inclusive invoice is issued) at
1/9 or 2/27], as the case may be.
Since, the tax invoice could be issued within 28 days; the date of issue of 'tax invoice'
may fall in the month of January 2016. In such a case, the rate applicable is 11% as
the time of supply falls in December 2015.
(2) Adjustment for Cash Basis supplies - by providers of construction services or
consultation services
If the approval is obtained by any registered person to keep records on cash basis
under section 23 (cash basis allowed only for providers of construction services or
consultation services), the time of supply is the time on which the payments are made
by the recipient of such services. Hence, if the payments are received after December
31,2015, by such supplier, the time of supply falls in the year 2016, accordingly, the
rate applicable is 12.5%.
Please note that such registered persons are not permitted to issue tax invoices until
the payments are received by them.
(3) Advance Payments
If an advance is received prior to 01.01.2016 (both under cash basis or accrual basis),
then, the time of supply of such advance is the time of receipt of the same. Hence,
VAT is liable at 11% and such part (attributed) of VAT should be deducted when the
supply is invoiced on or after 01.01.2016.
Illustration:
It is assumed that rent agreement is entered into in December 2015, on a monthly rent
Rs.I00, 000/- and 20% of the total Rent for one year is received as an advance
payment in the same month.
Advance received in December 2015 (20% x 1,200,000/-)
VAT @ 11%
Total invoiced
240,000
26,400
266,400
Month of January 2016 Rent
Less-Advance (20% of the Rent)
Balance Rent for the month
Add- VAT
@ 12.5%
100,000
20,000
80,000
10.000
2
(4) Adjustment in respect of:
Bad debts written off on invoices issued prior to 01.01.2016
Bad debts recovered which was written off prior to 01.01.2016.
Adjustment for Debit Notes, Credit Notes etc.
The adjustments also should be made based on the rate applied prior to 01.01.2016.
Since there is no column in the latest VAT return for adjustments at the rate of 11%,
the tax (V AT) should be adjusted either at 8% or 12.5%, as the case may be, by
adjusting the value of supply in the Schedule attached to the return and bring the net
result to the return as set out in the illustration. However, this is only for the purpose
of filling the return. The value of supply for any other purposes should be the actual
value of supplies. The registered person should keep a record of the adjustment made
in this manner, for the reconciliation of the value of supplies for VAT purposes and
the turnover for income tax purposes.
Illustration:
(i)
Bad Debts written off on invoices issued prior to 01.01.2016
It is assumed that, a registered person is a supplier of service
Value of supply, liable for the month of January 2016
Rs.
1,500,000
Bad debts written off on supplies declared in 2013 Rs.5, 000 and VAT
at 12% for such period is Rs.600
Value of supply (Rs)
Value of supply
Less-for bad debt Rs. 5,000
(600 x 100)
VAT (12.5%)
187,500
600
1,500,000
4,800
12.5
Value of Supply for VAT
1.495,200
Value of supply for income tax purposes
1,495,000
(ii)
186,900
(1,500,000
- 5,000) =
Debit Note
It is assumed that; registered person is a supplier of goods
Value of supply in the month of January 2016
Rs .1, 600,000
Under-charged value of supply in the month of December 2015 is Rs.
6,000 and VAT at 11% is Rs. 660 such VAT adjusted through a debit
note.
The adjustment should be as follows.
3
Value of supply (Rs)
Value of supply
1,600,000
(660
x
100)
8,250
Add-debit note Rs. 6,000
8
Adjustment
Value of Supply for VAT
1,608.250
Value of supply for income tax purposes (1,600,000
VAT (8%)
128,000
660
128,660
+ 6,000) = 1,606,000
(5) Claim of Input Tax Credit
Any input tax credit relating to supply of goods which is liable to tax at 8% is restricted
to the same rate.
The residue is disallowed
for VAT purposes
claimed relating to tax invoices for any period prior to January
(including
any input tax
I, 2016, other than carried
forward balance).
(6) Consequential
changes
Management Information
The Registered
with implementation
System (RAMIS)
of
Revenue
Administration
Persons are required to:
Claim all input tax credit on invoices for taxable periods up to 31, December
2015 in the return for the taxable period ending on 31, December 20 IS. Input
tax relating invoices for periods ending prior to December 31,2015 cannot be
processed through RAMIS system.
Issue separate tax invoices where different rates are applied.
the case
may be). The system
difference
tax rates.
However,
the registered
does
not accept
single
(8% or 12.5% as
tax invoice
persons who have obtained approval to keep records
on cash basis are not allowed to claim input tax on their purchase
until the payments
schedule
with
are made. Hence, they are required
when the input tax credits are claimed
invoices
to submit a separate
in subsequent
months,
since
the rate of input tax varies.
Furnish all SV AT schedules
electronically.
The format will be published
in
the Inland Revenue Website.
A circular with comprehensive instructions on all the changes will be issued once the instructions
are received from the Ministry of Finance including the subsequent changes made to the
proPJ\;~~a
(Q~l~
Kalyani Dahanayake
Commissioner General of Inland Revenue
4
Kalyani Dahanayake
Commissioner General of Inland Revenue