Exporters asked to coordinate with Customs to avoid VAT refund delays

To avoid further delays in VAT refunds the Inland Revenue Department says exporters should coordinate with Customs when presenting export figures to the Inland Revenue for VAT refunds. The tax administrator says discrepancies in export data, between exporters and the Customs Department, are a primary cause of delayed refunds.

"One of the big problems is reconciliation of exports presented by Customs and the exporters. There is a very big difference between your figures and the Customs records. So we cannot refund these claims, particularly since the VAT fraud. Your figures have to tally with Customs figures. So please go and update your data at Customs because it is Customs data that we use to verify your claims," R K H Kaluarachchi, the Deputy Commissioner General of VAT and ICT, Inland Revenue Department, told exporters on Thursday. He was addressing exporters at a forum on VAT refunds organised by the Academy for International Trade and Transport, the training arm of the Sri Lanka Freight Forwarders Association and the Sri Lanka Shippers' Council.

Exporters seeking refunds on the basis of bank guarantees will be allowed refunds in the first instance, despite discrepancies in Customs data, but must reconcile the first figures when applying for the next round of refunds.

The Inland Revenue said on Thursday that it will settle another chunk of over-due VAT refunds within the coming week, as it had received more funds from the Treasury. Exporters say they are due millions of rupees worth of refunds that have been processed and approved by the Inland Revenue.

"Today we got another Rs 480 million fund allocation from the Treasury. So from tomorrow we will settle all outstanding bank guarantee VAT refunds. As of today the outstanding, approved refunds was around Rs 800 million. So the outstanding will reduce to around Rs 400 million after tomorrow," said Kaluarachchi.

However, these partial settlements that will take place over the week are only those VAT refunds that have been cleared by the Inland Revenue. More VAT refund applications running into billions of rupees are yet to be cleared.

The Inland Revenue says refund delays will continue for another 6 months but has already requested more funds from the Treasury to pay up over-due refunds.

"We are approving refunds worth Rs 1 billion every month. These are mainly from the backlog. So now gradually the outstanding amounts are coming down. I am also trying to get additional funds from the Treasury. So this will be sorted out in another 5 to 6 months," said Kaluarachchi.

Meanwhile exporters say they are experiencing serious cash flow problems because of the large sums of money that has been delayed over long periods of time. Some companies have overdue money situations from as far back as 2005. Large exporters have claimed VAT refund over-dues ranging from Rs 500 million to Rs 900 million. However, the majority small and medium exporters, with less than Rs 100 million in dues, are the most badly affected by the cash crunch.

"Some companies in our Association are due VAT refunds from 2005. A large number are due VAT refunds from 2006 and a very large number are due refunds for this year.

Even those companies under the 15 Day Bank Guarantee Scheme are lucky to get their refunds in 90 days, after producing a bank guarantee. There is also evidence of harassment," said Mohan Mendis, Chairman of the Sri Lanka Exporters Association.
Exporters say that although VAT exemptions were originally provided to help exports the current situation is doing the exact opposite.

"The impact of these delays on exporters is a sever disruption of cash flow management. Smaller exporters simply cannot afford this. Because of the high cost of finance most people are by now pushed against the wall and the competitiveness of Sri Lankan goods and services are also affected," said Mendis.