Finance ministry has postponed the proposed abolition of the SVAT system due to come into play on April 1 of 2017. The abolition of the SVAT system was first proposed by the 2017 Budget and was due to be carried out by the 1st of January however was postponed to April pending various discussions between the private sector and the prime minister.
A number of joint submissions was made to the Finance Ministry by Ceylon Chamber of Commerce (CCC), Joint Apparel Association Forum (JAAF), Exporters Association of Sri Lanka (EASL), The Lanka Fruit and Vegetable Producers, Processors and Exporters Association (LFVPPEA), National Chamber of Exporters (NCE), National Chamber of Commerce (NCC) and Sri Lanka Shippers’ Council. The theme of the submission was that to keep maintaining the current system until a more robust vat refund system is enacted.
SVAT scheme was implemented with effect from April 1, 2011 in terms of sections 2(2) of the value-added Tax Act No, 14 of 2002. This measure was intended to solve some of the grievances which occurred due to time constraints of the VAT input refunds which created cash flow problems for exporters. Furthermore, there was also a large case of fraud occurring due to Department of Inland Revenue paying out bogus claims made by fraudulent exporters.
The then Inland Revenue Department Deputy Commissioner General Mallika Samarasekara, at a seminar organized by the Joint Apparel Associations Federation expressed that the reason there were massive delays was due to time-consuming investigation processes which was a must due to fraud that had preceded it. She further commented that the SVAT scheme will be able to handle refunds in as many as 4 weeks which previously could have taken any time up to a year.
This although was noted as an effective means of addressing cash flow concerns, the system was not devoid of criticisms. First one being that though it was named simple, in practice it was anything but. The level of heavy compliance burden it enacted has resulted in a large number of documentation burden as well. Also, the SVAT was proposed as an interim solution until the Revenue Administration Management Information System (RAMIS) was fully implemented and operational.
The Finance Minister has earlier alleged that some of the parties calling for continuation of the SVAT scheme are smaller companies that engage in fraudulent activities. However, it is important to note that despite such statements larger exporter groups have also called for SVAT to exist in parallel with RAMIS or to be continued until RAMIS is fully functional.
The move to postpone the abolition will provide much needed stability in cash flow deficiencies for exporters, eliminate worries over such instability occurring due to the transition period and will work positively towards growth in the export sector in the coming months. As the RAMIS will also have additional time to be implemented across various government agencies and streamlined to better provide a quality and efficient service, when the transition will begin to RAMIS from the SVAT scheme it can be expected to be smooth and with a higher chance success.