A retired Deputy Commissioner General of the Inland Revenue Department has called for trading to be removed from the VAT net altogether, for the Social Security Contribution Levy to be confined to traders, and for VAT to rise from 18% to 20% to cover the revenue gap.
The proposals were set out by N M M Mifly in a commentary published by EconomyNext at 3.48 p.m. on Saturday. This is an argument advanced by a former tax administrator, not a government decision or a proposal before Cabinet.
The core claim: two taxes, one base
VAT is charged quarterly at 18% on four branches of business activity — manufacture, imports, trading, and services. The SSCL is charged quarterly at 2.5% on the same four branches.
Mifly’s central contention is that this is duplication rather than policy: splitting what is in substance a single sales tax into two components “may create the illusion of moderation”, because each appears lighter considered alone, while the combined effect raises the cost of doing business and compounds administrative and compliance inefficiency.
Why traders, specifically
The argument against taxing traders under VAT rests on three structural features of retail:
- Margins. Traders sit at the end of the distribution chain and typically operate within a 10% margin, against which Mifly puts net VAT revenue from traders at under 2% of turnover.
- Maximum Retail Price. Traders are legally bound to sell at the MRP set by primary suppliers, and breaching it is a punishable offence — so the tax cannot be passed on.
- Input credits. Most traders buy from suppliers who are not VAT-registered, leaving them unable to claim input tax credits.
He argues GST and VAT were originally designed to exclude trading precisely to concentrate administration on fewer, larger taxpayers, and that bringing traders in during 2013 “distorted the system’s logic.”
The threshold history
The commentary tracks the VAT registration threshold as evidence of policy drift: an original split of Rs. 2,000 million for trading against Rs. 12 million for non-trading; a uniform Rs. 300 million under the Gotabaya Rajapaksa administration; then Rs. 80 million and Rs. 60 million under the Wickremesinghe government.
Where this sits against the record
One point needs flagging. Mifly describes the present threshold as Rs. 60 million and frames his recommendation as a reduction to Rs. 12 million from that level.
This site has reported that the SSCL (Amendment) Act No. 10 of 2026 lowered the SSCL registration threshold from Rs. 60 million to Rs. 36 million in April, and that in June the IRD ordered businesses with daily turnover above Rs. 100,000 — roughly Rs. 36 million a year — to register for both VAT and the SSCL from 1 July.
Whether the VAT threshold itself still stands at Rs. 60 million is not resolved by the commentary, which does not address the 2026 changes. The direction of his proposal — a much lower threshold on a much narrower base — is unaffected either way.
The piece also gives the SSCL rate as 2.5% in its analysis and as 2% in its recommendations. The rate set under the original Act No. 25 of 2022 is 2.5%.
The full set of recommendations
- Remove trading activity from VAT entirely.
- Cut the VAT registration threshold to Rs. 12 million, covering manufacturers, importers and service providers.
- Exempt those VAT-registered primary suppliers from the SSCL.
- Raise VAT from 18% to 20%, matching the rate already applied to financial services, to close the resulting gap.
- Confine the SSCL to traders and other non-VAT-registered persons.
Mifly notes that an evidence-based feasibility assessment would require a data analysis report from the IRD’s Secretariat Unit, and criticises professional bodies, trade chambers and tax advisers for staying silent on the question.
Not reported
The commentary gives no revenue estimate for any of its five recommendations — neither the loss from removing traders from VAT nor the yield from an 18%-to-20% rise — and does not address the implications for Sri Lanka’s IMF programme revenue targets, under which base-broadening has been a central condition.
No government response has been reported, and as an individual commentary it is single-sourced by nature.
