SVAT scheme termination contingent on effective refunding mechanism

• In June, Cabinet of Ministers announced decision to rationalise VAT exemptions and abolish SVAT scheme 
• SVAT was introduced in April 2011 to address fraud and corruption that arose due to delays in VAT refunds

The tax policy advisory of the Finance Ministry has given assurance to the business community that if there is no proper refunding mechanism in place, the removal of the Simplified Value-Added Tax (SVAT) scheme may not take place in January 2024, the National Chamber of Exporters (NCE) said. 

The assurance was given by Finance Ministry Tax Policy Advisor W. Thanuja A. Perera, the NCE said in a press release that was based on a panel discussion it hosted on SVAT, recently. 

According to the NCE, Perera has shared while addressing the panel discussion that the authorities are working on a mechanism to make sure that the exporters are protected via a refunding mechanism, following the termination of SVAT. 

“Refund is part and parcel of the VAT mechanism. Currently, we are in a situation where we need to have more revenue mobilised,” Perera was quoted as saying. 

While noting that the removal of SVAT is in the drafting stage, Perera had pointed out that there was no VAT mechanism in any other country without refunds.  

Meanwhile, discussions were also held on whether the Inland Revenue Department (IRD) needs to issue credit vouchers to Customs for the VAT amount payable at the point of import, under the Temporary Import for Export Processing n(TIEP) scheme. 

In June, the Cabinet of Ministers announced the decision to rationalise the VAT exemptions and abolish the SVAT scheme. 

The exporters across diverse industries responded to the move stating that the SVAT removal would be detrimental. VAT was introduced in April 2011 to address the fraud and corruption that arose due to the delays in VAT refunds to the manufacturers supplying to exporters, providers of specified services to exporters and many other taxpayers. 

The NCE highlighted that prior to the implementation of the SVAT system, the exporters, who had refunds from the IRD, suffered due to the inefficiencies of the tax office to process refunds in a timely manner. Some refunds to exporters dragged up to about 18 months.  Due to massive refund build-ups in the past, the room opened for fraud and corruption in relation to VAT refunds as well, the NCE pointed out.