ECONOMYNEXT – Sri Lanka is planning to charge 18 percent value added tax on Paypal, which is considered a financial service and also Stripe, at a time when smaller taxes on credit cards have fallen foul with the International Monetary Fund, under new rules to tax foreign services.
“Financial Technology (FinTech): online banking, payment processors (PayPal, Stripe, and crypto currency
exchanges),” the new gazette requiring VAT to be collected by foreign platforms from October 01 says.
Paypal, which is a financial service, is exempt from VAT in countries like UK and the EU which has well-functioning tax systems.
36 percent VAT?
Stripe, which also collects money on behalf of third parties is subject to a so-called ‘reverse charging’ process which nets off the value added tax on the underlying service, in countries with well-functioning systems.
Paypal however has a service where they can collect VAT on behalf of the underlying service or good, when payment is made.
By charging VAT on services like Paypal and Stripe, the State can also collect VAT from people who are buying underlying services which fall below the 60 million rupee threshold sanctioned by parliament, analysts say.
Financial services are an exempt service for VAT in countries with well-functioning tax systems.
Sri Lanka’s chaotic tax system, which is put into further chaos with ad hoc new taxes in IMF programs that follow each currency crises triggered by rate cuts, also has a tax on financial services unlike in other countries.
The so-called ‘financial VAT’ operates mostly on a base of emoluments and acts like an additional income tax in Sri Lanka.
Sri Lanka is also charging a 2.5 percent tax on foreign purchases via credit cards, which has been deemed a violation of IMF rules on external payments and amounts to a Multiple Currency Practice.
Since Paypal is used to make payments for an underlying service, or a good, Sri Lankans could end up paying more than twice the VAT rate or 36 percent plus the credit charge taxes when buying services and also goods, online.
More: https://economynext.com/sri-lanka-to-charge-vat-on-paypal-stripe-amid-existing-imf-mcps-231696/
