Value Added Tax (VAT) was introduced by the VAT Act, No.14 of 2002 and which was in force from 1st August, 2002. This Act was introduced by replacing the Goods and Services Tax (GST) which was almost similar tax on the consumption of goods and services.
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. It is an indirect tax, the tax is borne by the final or the ultimate consumer of Goods or services.
As such the Government will receive an amount equal to the amount paid by the final consumer at the end even through there are number of intermediary suppliers in the chain of production and distribution.
The exempt supplies of goods and services provided in Part II of the First Schedule to the VAT Act.