21 December 2023
Authorized mobile phone importers in Sri Lanka have warned the government that its decision to not only raise its value added tax (VAT) next year but also apply it to mobile phones will only benefit parallel importers and make the grey market problem worse.
The Sri Lankan government plans to raise the VAT from 15% to 18% starting 1 January 2024. It also announced recently that mobile phones will be removed from the VAT exemptions list when the new rate kicks in.
Mobile phone importers are concerned that the combined moves will boost demand for grey-market phones. That would not only hurt the business of authorized importers, but also cause the government to lose even more revenues, as parallel-import phones naturally do not generate VAT revenue.
Parallel imports of mobile devices have already cost the Sri Lankan government LKR3.1 billion in unrealised tax revenues, as well as a Forex outflow of LKR31.6 billion via illegal channels. Under the new VAT rules, the former figure could jump to LKR11.9 billion. Also, as sales of legitimately imported phones decline, the government could see a LKR2.5 billion decline in tax revenue,
