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Simplified Value Added Tax scheme

In the past exporters of this country had a genuine grievance that the VAT input was not refunded on time which results in cash difficulty.

Further, massive fraud in the Inland Revenue Department had occurred by paying bogus refund claims submitted by fraudulent exporters.

The government has introduced a new system effective April 1, 2011 called Simplified Value Added Tax Scheme (SVAT).

This scheme if properly implemented removes the cash difficulty faced by exporters and this is a stimulation for exports which is very essential for the country. Further the possibility of fraud is also diminished as there is no cash involvement.

Though this is called a Simplified System I am of the opinion that the compliance is a little difficult unless it is correctly understood by all. The Inland Revenue Department had several seminars in the past either direct or through Trade Chambers to educate the public. I quote below the following in this regard.

Registration

a. Only VAT registered person as well as the suppliers of goods and service to such registered person (not including optional VAT payers) are entitled to be registered.

b. Those who were under scheme operated by EDB or TQB should also be registered under this scheme.

c. Registration should be done under the enrolment form SVAT - 01.

d. There are two parties

i. Registered, Identified, Purchaser (RIP)

ii. Registered, Identified, Supplier (RIS)

e. The following have to be registered together with their suppliers.

i. Exporters (providers of zero rated services under section 7 of the VAT Act)

ii. Registered persons engaged in any Specific Project referred to in sub paragraph (ii) of Paragraph (f) PART II of First Schedule of the VAT Act.

iii. Persons registered under Section 22 (7), and who are entitled to claim input tax under the Act.

iv. Manufacturers who supply goods manufactured in Sri Lanka (liable to VAT) to exporters to be utilized for manufacture of goods to be exported.

v. Suppliers who provide value added services to exporters which results in the improvement of the quality, character or value of any goods manufactured for export.

f. Exporters (e i. - qualify for registration only when his zero rated supplies is more than 50 percent of his total taxable supplies.

g. Persons under e.iv and e.v qualify as RTP only when his suspended supplies (including zero rate supplies) if any is more than 50 percent of his total taxable supplies.

h. RIP before making purchases from a supplier should request him to register under RIS. A back dated registration is considered for a period not more than 14 days.

Operation

i. RIP could purchase only from RIS. He (RIP) could make local supplies on suspended terms but the total zero rated supplies for a calendar month should be more than 50 percent of his total supplies.

ii. RIS cannot purchase goods on suspended terms unless he has registered under RIP as well. If total suspended supplies to an RIP by an RIS is more than 50 percent of his total supplies for a calendar month he could be accorded RTP status as well.

Credit vouchers (SVCV)

i. RTP could be provided with simplified VAT credit vouchers (SVCV) in the serial order by the Department of Inland Revenue. A book would contain 50 credit vouchers.

ii. It must be signed by two authorized persons (signatories). Their details (name, specimen signature and NIC No.). should be provided to the department.

Any changes should be advised immediately.

iii. Two people should be authorized to collect SVCV Books. Their details should be registered with the Department of Inland Revenue.

iv. SVCV should be issued by the RIP to his respective RIS within 14 days from the end of any calendar month in which such purchases were made.

v. RIP is required to issue one credit voucher considering the aggregate purchases made during the one calendar month. Individual credit voucher for every transaction is not necessary.

vi. SVCV will be valid only up to the date of filing the VAT return.

If not claimed on time respective supplies relating to such voucher would be considered as taxable supplies and VAT has to be paid.

vii. If SVCV is not issued by the RIP on time matter could be referred to Department of Inland Revenue for stern action. They may cancel the RIP status given and refuses to issue further SVCV as well. They may impose penalty as well.

Documentation

The following documents are specified.

a) Registration Form - (SVAT 01)

b) Suspended VAT invoice used for supplies without charging VAT -(SVAT 02)

c) Simplified VAT Credit Voucher - SVCV

d) Total output declaration - (SVAT 03)

e) Confirmation of the supply from both parties - (SVAT 04)

f) Monthly supplementary declaration form (SVAT 05)

g) Suspended debit notes declaration form (SVAT 05 (a)

h) Suspended credit notes declaration form (SVAT 05 (b)

i) Summary of the suspended supplies (SVAT 06)

j) Reconciliation of cancellation of credit vouchers form (SVAT 06 (a)

k) Summary of the suspended supplies - (SVAT 07)

Submission

a. All RIPs should send all necessary forms and details in relation to calendar month with two copies of acknowledgment., the form of which can be downloaded from the website. All forms such as SVAT 03, 06, and 06(a) should be handed over to the simplified VAT Unit on or before 30th day of the following month.

b. All computer generated Suspended Tax Invoices (SVAT 02) should be e-mailed as per the given data specification in a TEXT format.

c. All RISs should send all necessary forms and details in relation to a calendar month as per the covering letter which can be downloaded from the Web-site with a copy and all SVAT 03, 04, 05, 05(a), 05(b), 07 should be handed over to the simplified VAT Unit on or before 30th day of the following month.

Returns

a. All RIPs and RISs should submit VAT returns monthly

b. All RISs who have been accorded RIPs status as well should submit their VAT returns on monthly basis. All RISs other than above should submit their VAT Returns on quarterly basis.

c. VAT returns should be submitted to the Data Processing and Revenue Accounting Unit (DPRU) on the seventh floor of the Inland Revenue Building except registered persons who make supplies to special projects. Such persons should furnish their return to the commissioner, VAT Unit which is on the second floor. All VAT returns should be furnished on or before 20th day of the following month.

I presume I have elucidated the correct position for due compliance. Interested parties could obtain further clarification from the Inland Revenue Department or their tax consultants. The guidelines issued by the Inland Revenue Department are subject to amendments from time to time. It is very important for the Inland Revenue Department to advise the public through the press early.

The writer is a Council Member of the National Chamber of Commerce of Sri Lanka

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