VAT Guide to Value Added Tax - sri lanka inland revenue ...

Thus output tax of B on the termination of lease and
disposal of bus = 892,500/- @ 10%
= 89,250/-
(because the VAT rate applicable to this bus is 10%)
This transaction being treated as something outside the lease, input tax credit may be allowed for
the Bank B on the following basis.
Input tax of B
(allowable portion)
= (Input tax paid) x Unexpired Lease period
Total lease Period
= 160,000 x 42
72
= 93,333/-
Taxable period ending 31.03.2005
C paid Rs.89,250/- as VAT to bank in February on the termination of the lease and purchase of the bus. But
Input tax of C on termination of lease 89,250/- is not allowed in the hands of C because he uses the bus in
an exempt activity.
Input tax on insurance premiums
Lessee C who has insured the bus as the exclusive user is not entitled to input credit on insurance
premiums because passenger transport services is exempt from VAT. what is stated above.
Eg: 2 – If in the above case there was a total loss after the accident and the insurance claim was
Rs.1,100,000/- what is the VAT implication ?
If it is a total loss the insurance claim can be treated as payment for the disposal of the bus and be taxed at
the rate applicable to supply of a bus (i.e 10%) and not at 20%.
∴ Output tax of C = 1,100,000 @ 10%
= 110,000/-
Input tax of D = 110,000/-
But the entire 1,100,000/- will be appropriated by the bank which forwards the insurance claim on be behalf
of C leaving only Rs.110,000/- VAT to C because the bus belongs to B.
Eg 3 - In the above example, if it was a lorry (lessee is in lorry transport business)then leasing installments
are liable to VAT. The rate of VAT is 10% because the lease is under Finance Leasing Act.
Sale of Bus by A and purchase by B
Output tax of seller A = 1,600,000 @ 20%
= 320,000/-
Input tax on Bank B = 320,000/-
Leasing Advance
Output tax of bank B = 300,000 @ 20%
= 60,000/-
Input tax on lessee C = 60,000/-
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