Press briefing of Cabinet Decision taken on 2023-06-05

Rationalization of Value Added Tax (VAT) Exemptions and Repealing the Simplified VAT (SVAT)

- Two major reforms with regard to Value Added Tax have to be introduced as per the Extended Fund Facility (EFF) arrangement of the International Monetary Fund (IMF). Under this, it is required to revamp the Value Added Tax System by removing majority exemptions and to abolish the SVAT system. It is possible to increase the tax revenue approximately by 1.2% of the Gross Domestic Product through the re-rationalization of existing VAT exemptions. Accordingly, the proposal made by the Minister of Finance, Economic Stabilization and National Policies to instruct the Legal Draftsman to draft a Bill to amend the relevant provisions in the Value Added Tax Act, enabling to remove the vast majority of exemptions of VAT by retaining exemptions on the fields of education, health and agriculture and also exemptions which soften the impact on the low-income households and protect key sectors in economy and to abolish the existing SVAT system with effect from 2024‑01‑01 by introducing a more proper mechanism for the refund of VAT, was approved by the Cabinet.