New VAT refund system: Balancing hopes and concerns among stakeholders

Thursday, 31 July 2025 04:14 - - {{hitsCtrl.values.hits}}

A recent webinar hosted by the Committee for Research, Knowledge Mobilisation and Taxation (RKMT) of International Chamber of Commerce Sri Lanka (ICCSL) has stirred lively debate over the newly introduced risk-based VAT refund system. This system is crucial for businesses as it directly impacts their cash flow and operational efficiency. The hybrid event brought together tax experts, business leaders, and public officials to unpack the implications of the reforms for taxpayers and assess their readiness for implementation.

The webinar was moderated by RKMT Chairperson Dr. Nadee Dissanayake, and the session featured insights from panellists, Ernst & Young Principal – Tax Velauthaplillai Shakthivel, and KPMG Principal – Tax and Regulatory Rifka Ziyard with technical explanations provided by IRD Commissioner P. Disabandara. ICCSL Chairman Shanil Fernando in his introduction, reminded participants that the new system isn’t meant to intimidate businesses, but rather to modernise and speed up refund processing for those who follow the rules.

The reform, introduced with the support of technical experts from the International Monetary Fund (IMF), is part of a broader effort to improve Sri Lanka’s tax administration. By assessing taxpayers based on risk levels, the system aims to fast-track refunds for compliant businesses while strengthening oversight where needed. But while the intention is clear, many businesses say the reality is still murky.

Several participants expressed concerns about uncertainty in how risk levels are assigned, the readiness of the RAMIS system, and whether IRD officers are adequately trained to manage the transition. A recurring complaint was about long-standing refund backlogs, which some say are being treated differently and less favourably than claims made under the new system.

The business community, especially exporters, highlighted how cash flow disruptions from delayed refunds can severely affect operations. “We want to comply,” one participant noted, “but we also need to know the rules and trust that the system is fair and working.”

The presence of IMF-backed technical support provided some reassurance. It was acknowledged that the reform aligns with international best practices, and many welcomed the idea of risk-based automation. However, trust remains fragile. Businesses urged the IRD to improve communication, publish clear risk rating criteria, and ensure that legacy refunds are not forgotten.

Some participants even suggested interactive tools, like an online dashboard that shows a taxpayer’s risk rating and offers tips for improving it comparable to credit scoring systems used in banking.

As Sri Lanka continues its path to fiscal recovery, reforms like these are crucial. But the message from the webinar was clear: for policy to work, public confidence must follow. With the IMF playing a steady advisory role and business leaders ready to engage, there’s a real opportunity to get this right.

The ICCSL affirmed its commitment to keeping the dialogue open between the public and private sectors, and to ensuring that tax reform efforts lead to greater fairness, efficiency, and transparency for all. This webinar was covered by Daily FT.

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