Sri Lanka’s Inland Revenue Department says it has refunded more than Rs 82 billion in VAT, with virtually all eligible refunds processed in an average of 29 days. After years in which businesses complained that money owed by the State could disappear into bureaucratic limbo, this may be one Government reform deserving something increasingly unusual credit.
Governments are very good at announcing how much tax they have collected. They are considerably less enthusiastic about discussing how quickly they return money that was never theirs to keep.
That is why the latest figures on Sri Lanka’s VAT refund system deserve attention.
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The Inland Revenue Department has reportedly processed approximately Rs 82.4 billion in VAT refunds, with 99.98 per cent of eligible refunds processed within an average of 29 days, following the introduction of a risk-based refund mechanism. The Treasury says the change has substantially accelerated a process that historically frustrated businesses, particularly exporters.
VAT refunds are not a favour from the Government. When an exporter or other eligible business pays VAT on inputs but is entitled to recover that tax, delays effectively turn the private sector into an involuntary lender to the State.
For a large company that can be inconvenient. For a smaller exporter operating on tight margins and borrowed working capital, it can be crippling.
A refund sitting for months in a Government department is money that cannot pay salaries, purchase raw materials, service bank facilities or finance the next export order. Worse, the company may itself be paying interest to a bank while waiting for the Government to return its money.
That makes the reported 29-day average important.
The new mechanism reportedly uses risk assessment to distinguish claims requiring closer examination from those that can be processed more quickly. That is considerably more sensible than treating every taxpayer as a potential criminal and every refund application as an invitation to begin an archaeological excavation.
But the numbers deserve independent scrutiny too.
An average can conceal outliers. NEWSLINE would like to know how many claims remain outstanding beyond 30, 60 and 90 days; the value of those claims; whether the 99.98 per cent figure refers to applications, value or claims already deemed eligible; and whether exporters themselves recognise the improvement described by the Treasury.
There is also a larger economic point.
Sri Lanka regularly talks about becoming an export-led economy. Yet exporters do not operate on speeches. They operate on cash flow, predictable rules, competitive financing and a Government administration that does not unnecessarily trap their working capital.
If the new VAT system is genuinely returning legitimate refunds in approximately a month, it is exactly the sort of unglamorous administrative reform that can improve the country’s investment environment far more effectively than another conference announcing that Sri Lanka is open for business.
Government should therefore publish the performance data regularly. Let taxpayers see the number and value of claims received, approved, rejected and outstanding, together with average processing times.
And if those figures confirm what is now being claimed, give the Inland Revenue Department its due.
Be that as it may, taxpayers have spent years being told to pay the State promptly. It is only reasonable that when the State owes taxpayers money, the same rule should apply.
