Sri Lanka's Cabinet of Ministers has decided to reduce the Value Added Tax (VAT) from 15% to 8%, Prime Minister Mahinda Rajapaksa stated.

In the meantime, Co-Cabinet Spokesperson Minister Bandula Gunawardana said this VAT reduction will be in effect starting from the 1st of December 2019.

He stated this addressing the first press briefing to announce the Cabinet decisions of the new government this evening (27).

The VAT went up from 11% to 15% with effect from May 2nd, 2016.

Value Added Tax known as VAT was introduced to the tax system in Sri Lanka in 2002. At the beginning, VAT was charged under three levels at the rates of 0%, 10% and 20%. In 2005, it was increased as 5%, 15% and 18%. Later, in 2006, VAT was increased to a single rate of 20%.

The VAT is borne by the final or the ultimate consumer and not by the trader. It is an indirect tax and the Government will receive at the end, through all the intermediary suppliers and wholesale and retailers, an amount equal to the amount paid by the final consumer.

It is a tax on domestic consumption of goods and services. The goods imported into Sri Lanka and goods and services supplied within the territorial limits of Sri Lanka are the subject matter of this tax. It is a multi-stage tax levied on the incremental Value at every stage in the production and distribution chain of Goods and Services.