More than 1,500 Sri Lankan companies will lose their VAT refunds because they have not made their claims to the Inland Revenue Department (IRD) and as a result created a huge backlog of delayed payments.
The department, in a bid to streamline the VAT administration process, is to discontinue the files of 1725 VAT (Value Added Tax) payers (companies) who failed to furnish monthly or quarterly returns and those who have not made claims for refunds amounting to several millions of rupees over a considerable period, Department of Inland Revenue Commissioner General Mahinda Medagoda told the Business Times. He said that the department plans to clear most of the backlog in VAT refunds and VAT payers who were not keen in furnishing returns and making claims for refunds will not be considered under the VAT refunds process .
The number of VAT registered persons is 29,537 and the VAT collection was in the region of Rs.254 million in 2008, he said. Mr. Medagoda noted that the reason for delays for VAT refunds was taxpayers filling erroneous returns and it takes time to rectify it. The department has taken steps to minimize these delays by improving the refund procedures and administrative process. He called on tax payers to make payments and submit returns voluntarily rather than waiting for the intervention of tax officers to collect taxes.
He disclosed that tax evasion is very high in the country among traders, businessmen and those from the professional classes. Tax evasion takes many forms such as non-filing of returns, under-reporting of income or over-statement of expenses and includes transfer pricing, he said.
Claiming that the problem of the delay in VAT refunds is still persisting, former Chairman of the Sri Lanka Exporters Association Mohan Mendis, told the Business Times that the impact of delays results in a severe disruption of cash flow management of companies. He said that he is aware that a decision has been taken to expedite the VAT refund process by the department on the directions of the Finance Ministry Secretary P.B. Jayasundara.
He added that the decision taken by IRD not to make VAT refunds to companies which failed to make their claims on time was a sign of the department’s action to expedite the clearing of the backlog of VAT refunds. However he said that the department should publish the list of companies which will be removed from the list of VAT registered persons.