Sri Lanka government recently reduced the Value Added Tax (VAT) on fabric imports to 5 per cent from 15 per cent in order to help the apparel industry, particularly the small-scale exporters.
Minister of Finance and Mass Media Mangala Samaraweera signed the gazette notification on the tax cut after requests made by the stakeholders in the fabric industry. The decision was made to amend the VAT act considering the possibility of giving a helping hand to small scale industrialists under the ‘Enterprise Sri Lanka’ scheme.
Earlier the fabric was subject to Rs 100 per kg CESS at the time of imports and the budget 2018 had proposed to impose a 15 per cent VAT on goods and this VAT scheme came into effect from August 16, 2018.
As fabric was also subject to 15 per cent VAT, the importers, traders and industrialists had appealed to the Ministry of Finance so as to provide them some relief as fabric is the main raw material for producing the ready-made garments which constitutes about 60 per cent of total garment cost. The small scale traders and industrialists who were not covered under the VAT act were hit badly by the higher tax, according to the statement by Ministry of Finance
It is worth noting that under the ‘Enterprise Sri Lanka’, the subsidized loan scheme provided by Ministry of Finance and mass media, medium and small scale manufacturing industrialists can obtain fabric as raw material at a low cost.
The information on when this reduced VAT will come into effect from is not yet disclosed by Minister of Finance, Sri Lanka.
