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

Thus, any trade, business, etc. are considered as taxable activities. It is important to
note that the profit motive is not an essential ingredient of a “taxable activity”. The
essential characteristic of a taxable activity is that the activity must be concerned
with making (taxable) supplies for a consideration. Thus the supply of goods and
services for a consideration by a social service or charitable organization is considered
as a business and in turn as a taxable activity although the presence of a profit motive
may not be there and the consideration charged may be barely sufficient to recover the
costs. The consideration may be in money or otherwise than in money. However
any activity for pleasure and social enjoyment is not regarded as a taxable activity
although such an activity may have all the attributes of a business. Eg. A group of friends
contributing towards the expenses of a picnic; the contributions are not regarded as
considerations for supplies made in the course of carrying on or carrying out a taxable
activity.
Examples
Q - I sold a block of land which I received sometime back as dowry. Am I
required to charge VAT on the sale price?
A - In order to charge VAT you must be a Registered Person and the sale
must be in the course of carrying on or carrying out a taxable activity.
As per facts given above it is not in the course of carrying on a taxable
activity. Therefore VAT is not chargeable.
However, if the circumstances surrounding the sale are such that the
sale can be treated as an adventure in the nature of a trade then it
becomes a taxable activity and you are liable to charge VAT on the sale
value, if you are a Registered Person.
You may not be a registered person prior to the sale but you may
become liable to be registered with the sale if the intended sale price
exceeds Rs. 500,000/-. In such cases you are required to obtain a
Registration prior to the sale.
Q - I am a registered person and I sold my car used in the business activity.
Is the sale liable to VAT.
A - Yes. It is in the course of carrying out a taxable activity and liable to
VAT.
Q - I am a registered person and I sold the scrap in my business. Is it liable
to VAT
A - Yes, for the same reasons as above.
A contract of employment is not a “taxable activity”, i.e a job where a person receives
salary or wages. But a contract for service is a taxable activity. Eg. An accountant who
20