Understanding the Issues Surrounding VAT Refunds and Government Policy Implementation
Introduction
Exporters in many countries rely on government policies and tax incentives to remain competitive in the global marketplace. One such policy is the Simplified Value Added Tax (SVAT) system, which is designed to streamline VAT processes and ensure timely refunds for exporters. Recently, there has been significant pushback from exporters regarding the proposed abolishment of SVAT. The primary reasons for their concerns revolve around inefficiencies in the current VAT refund process and the perceived negative attitude of certain tax revenue officers toward government policy implementation. There are many SME Exporters who have not qualified under the present SVAT scheme, where they had to pay VAT on their purchases to Export and had to wait for many years to get their VAT refunds.
Removing SVAT would escalate & Aggravate this situation further due to the tying up of Enormous Capital and run the risk of eliminating the Exporters entirely from Export business.
Background: The Role of SVAT for Exporters
The SVAT system was introduced to simplify the VAT mechanism for exporters, aiming to reduce the administrative burden and expedite VAT refunds. This system is crucial for exporters, as VAT refunds represent significant working capital that can impact their cash flow and operational efficiency.
Exporters’ Main Concerns
1. Inefficiency in Processing current VAT Refunds
2. One of the central complaints from exporters is the longstanding inefficiency in processing VAT refunds.
Many exporters have reported that legitimate VAT refunds have been accumulating for years, with some refunds due as far back as 2023. Even after the tax authorities have analyzed and finalized the refund amounts, this process of transferring refunds to relevant exporters , often stalls due to delays in approval from certain officials in the finance department of the Inland Revenue Department. This bureaucratic bottleneck results in exporters not receiving their refunds in a timely manner, putting strain on their finances.
3. Attitude and Actions of Tax Revenue Officers:
4. Exporters have also expressed frustration with the attitude of some tax revenue officers, who are perceived as acting in a manner that jeopardizes government policy objectives. Instead of facilitating the refund process as intended by policy, some officers are seen as creating unnecessary obstacles or failing to approve the required fund transfers to exporters’ bank accounts. This has led to a lack of trust and confidence among exporters in the tax department’s ability to implement policy effectively. We believe that the Inland Revenue department shall work hand in hand with the policies of the government do enhance and increase the volumes of exports from Sri Lanka 2 receive valuable foreign exchange. This duality of certain officers in the Inland Revenue department has hampered the progress off the exporters, as a result large amount of capital has been tied up as VAT refunds within the department for many years. By abolishing the SVAT scheme, exporters think this situation might escalate and they will have to face a shortage of capital to do the business and in return they will lose global competitiveness. The government also needs to understand the cost of interest accruing to these large amounts of VAT refunds which have in return challenged the profitability of the exporters and as a result they will go out of business and in return country will suffer. Earning and finding buyers globally is not an easy task. This required many years of marketing and canvassing after spending good money to find an international buyer
5. This attitude of the certain Inland Revenue officers by holding into the VAT refunds had created doubts about corruption too. Which had resulted unpleasantness and no confidence from the exporters to the government policy of abolishing SVAT.
First and foremost, the government should urgently look into refunding all the legitimate VAT refunds to the relevant exporters before embarking on abolishing SVAT. Tax department and the treasury should work to develop confidence among the exporters that the government system of refunding is a smooth functioning by refunding all the backlog of VAT refunds to gain confidence of the exporters of this country. Presently the Amount tied up is massive with the abolishing of SVAT, could imagine the capital getting stuck as VAT refunds. This is the issue we need to address before just jumping to conclusions. 1st to create a fool proof process where a smooth refunding system within the tax authorities and to gain confidence among exporters before abolishing the SVAT scheme. Over to the policy planning officers to look into this process without agitating the current exporters who brings valuable foreign currency to Sri Lanka
Impact on Exporters
The accumulation of unpaid VAT refunds and the perceived lack of support from tax authorities have created an environment of uncertainty and poor confidence among exporters. Exporters depend on prompt VAT refunds to maintain liquidity and invest in growth. Delays and administrative hurdles can lead to cash flow problems, reduced competitiveness, and a reluctance to expand export operations.
Conclusion
The exporters, opposing the abolishment of the SVAT system, is rooted in practical concerns about the inefficiency of the current VAT refund process and the reluctance of some tax officials to implement government policies as intended. Before considering the removal of SVAT, it is crucial for the tax department to address the backlog of legitimate VAT refunds and restore exporters’ confidence in the system. Only then can policy changes be made without jeopardizing the export sector’s trust and financial stability.
