VAT hike from 11 per cent to 15 per cent since May has increased the cost of production in Sri Lankan manufacturing sector. This will lead to losing competitive edge with other countries in the region, Federation of Chambers of Commerce and Industry of Sri Lanka (FCCISL) president Sarath Kahapalaarachchi said.

FCCISL called on the government to simplify VAT system by reducing the rate from current 15 per cent to 5 per cent and asked the state to clear up misunderstandings on how it should be levied as this is harming profits. He criticised the government for failing to explain specific stages at which VAT should be imposed, insisting this misleads producers and consumers. According to him, retailers and manufacturers should be educated clearly on what VAT is, how it should be charged and how to register with the Income Tax Department for VAT.

The Federation had received several complaints during the past month on how retail stores within the same shopping complex sold goods at different prices due to the VAT increase. Accordingly, the companies who were registered for VAT had charged higher prices over the rest. This has resulted in a considerable fall in sales.