Sri Lanka to stop value added tax refunds to 1700 firms: report

Feb 21, 2010 (LBO) – Sri Lanka’s revenue office will stop refunding value added taxes (VAT) to 1725 firms on the grounds that they have not submitted documents on time, a media report said.

A VAT regime works effectively when there is a flat rate (such as 20 percent) and all sectors are included.

The Sunday Times newspaper quoted the director general of Sri Lanka’s Inland Revenue Department as saying that his office will “discontinue” the files of 1725 firms.

These were firms that failed to “furnish monthly or quarterly returns” and those that have not made claims for refunds “over a considerable period.”

Export firms who are ‘zero rated’ under a value added tax regime is usually entitled to a refund, made up of ‘input taxes’ paid to suppliers.

In Sri Lanka the value added tax system has been undermined by a system of multiple tax rates where even a firm where output tax could be lower than the rates paid on some inputs.

By dropping firms which are entitled to refunds, the government could increase its revenue collection.

The newspaper quoted a Sri Lanka’s Exporters’ Association official as saying that delays in VAT refunds were disrupting the cas