Exporters are expected to bring back their export proceeds within 6 months if they hope to collect VAT refunds from the Inland Revenue Department following the abolishment of the Simplified Value Added Tax (SVAT) system.
The transition into the removal of exemptions is expected to be very complex due to the timing of the passing of the law. KPMG Principal Tax & Regulatory Division Suresh Perera said, “One of the major concerns about the SVAT system is that money is not being brought back into Sri Lanka.”
Perera highlighted that in the current system exporters that are not honestly remitting back their proceeds are receiving the same treatment as exporters that are remitting their funds into the banking system.
Perera was speaking on September 8 at the KPMG informational webinar on the VAT Amendment. There have been no changes to the VAT refund law.
VAT refunds have to be made within 3 years of the taxable period and in compliance with the remittance clause. Excess input claims must be made within 45 days of the end of the taxable period.In the case of a VAT refund being made late by more than 30 days, there is eligibility for payment of interest on the amount due. There is yet to be much clarity on the rate of interest payable.
The following people entities are eligible to claim excess input for refunds; Exporters or Zero-rated service providers under Section 7 of the VAT Act, a manufacturer who supplies goods(deemed exporter) manufactured by himself to an exporter, a value-added service provider, who provides services to an exporter which improves the quality, character or value of the goods manufactured for export, a project approved by the Commissioner General of Inland Revenue under 22(7) – (during the project implementation period), any supplier who supplies goods or services to a specified project a Strategic Development Project.
KPMG Principal Tax & Regulatory Rifka Ziyard said, “According to the budget speech the VAT exemptions add up to over 1% of GDP.” Citing the First Schedule Ziyard explained that the VAT exemptions are applicable for any taxable period commencing after the first day of the month immediately succeeding the month in which the bill becomes an act of parliament. Fabric or related accessories that are registered accordingly by the Inland Revenue Department could continue to enjoy tax deferment at the discretion of the Commissioner General. Goods imported into a bonded zone before 1 January 2024 for manufacturing goods for export shall continue to enjoy deferment of taxes.
Perera said, “What we have in Sri Lanka is still hard-copy invoices. Our VAT act has not been reformed to identify electronic VAT invoices.” The VAT act, however, would be overridden by the Electronics Transaction Act which has broad accepting principles on appropriate digital documentation.
VAT refunds may still be cancelled by the Inland Revenue Department. The following basis can be used for cancellation; Failed to pay the correct taxes, failed to furnish a return for the specific taxable period, failed to furnish further information relating to any claim of refunds within the period specified in the letter issued to him, and fails to attend in person or make representation by an Authorized Representative at such place and on such date at such time as specified in the letter issued to him.
Many items have retained the exemption on VAT accessible on a list compiled by KPMG. Local IT services will be liable for VAT. (TP)