Sri Lankan mobile importers say VAT hike will make grey market worse

Sri Lankan mobile importers say VAT hike will make grey market worse

Authorized mobile phone importers in Sri Lanka have reportedly 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 even worse.

The Sri Lankan government plans to raise the VAT from 15% to 18% starting January 1, 2024. It also announced recently that mobile phones will be removed from the VAT exemptions list when the new rate kicks in.

According to Sri Lankan newspaper The Island, mobile phone importers are worried 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.

The report said that parallel imports of mobile devices has already cost the Sri Lankan government LKR3.1 billion (US$9.4 million) 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, the report said.

In the meantime, the report said, importers are working with the Telecommunications Regulatory Commission of Sri Lanka (TRCSL) to find ways to deal with the parallel imports issue. Among the solutions being proposed: registering parallel-import devices already in use at a nominal fee, and whitelisting non-registered IMEIs from mobile networks, the report said.


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