Sri Lanka’s simplified value-added tax (SVAT) replacement VAT return mechanism system categorises refund applications based on the perceived risk of each taxpayer, moving away from refunding based on a standard, one-size-fits-all approach, KPMG said.
“The risk based refund scheme is a structured mechanism that categorises refund applicants based on their risk profiles, as low, medium or high. This is determined by compliance history, accuracy of filing, reliability, overall behaviour,” a report titled: “The Operation of Risk Based Refund Scheme” released by the global audit firm on Monday (6) said.
The replacement refund system has been effective from 1 October, despite repeated calls from exporters to retain the previous SVAT return system, fearing cash flow disruptions which stem from the time-taken for refunds to be made through an upfront VAT system.
The SVAT is a mechanism that reduces the volume and amount of VAT returns to be processed by the Inland Revenue Department, and thereby also minimises the cash flow impact of taxation before export on exporters.
Under the extended facility fund (EFF) with the IMF in 2023, Sri Lanka agreed to a structural benchmark to repeal the SVAT framework by April of this year, with the conventional VAT refund processing model replacing it.
However, during the 2025 budget, it was announced that SVAT would be formally abolished from 1 October.
Based on the risk ratings, low risk and medium risk taxpayers are to have their refunds processed without risk taxpayer verification, whereas high risk taxpayers are to have their refunds processed only after the completion of pre-verification, the report said.
According to Sri Lankan tea exporters, tea industry exporters will be mandated to spend roughly Rs. 2 billion each week in value-added taxes (VAT) when purchasing their recorded weekly average of five million kilogrammes of tea at tea auctions, which could lead to smallholder farmers being dissuaded from producing tea.
Representatives of Sri Lanka’s rubber industry earlier raised the alarm on the risk of a potential cash flow crisis impacting the entire rubber value chain, from smallholder farmers and SMEs to large-scale exporters, and in turn impacting Sri Lanka’s foreign exchange inflows.
Sri Lanka’s cumulative total of export earnings reached approximately $ 11.55 billion by the end of August, with a target of $ 18 billion for the year.
The global trade outlook for the rest of 2025 remains uncertain, due to tariffs escalations led by the US government, trade instability, policy uncertainty, and geopolitical tensions.
The KPMG report further detailed the requirements exporters are to maintain to avail of the mechanism, which includes maintaining accurate and updated profiles on RAMIS (Revenue Administration Management Information System), including bank accounts, email, and authorised contact persons.
Further, maintaining of all documentation, information, access and facilities will be mandatory to enable the CGIR or the Authorised Officials to conduct site inspections.
Exporters are also required to submit schedules via the schedule capture screen in e-services or CSV files verified with the schedule verification tool.