Financial Times

VAT system badly needs review

“The emerging picture is that the whole system of value-added tax has been a failure in this country due to the breakdown in the administration. The very purpose of zero-rating exports have been negated as a result of the breakdown of the refund mechanism which is an integral part of any successful VAT regime,” he added.

The Exporters Association of Sri Lanka (EASL) recently slammed the VAT (Value Added Tax) system and several problems arising in the Department of Inland Revenue over this issue and said the system was ‘badly in need of review”.

“It is becoming increasingly evident that the Department of Inland Revenue is not geared to cope with the overload of work that the VAT Refund System entails.

This has resulted in serious cash flow deficiencies in member Companies and payment of interest at penal rates as a result of legitimate dues of exporters not being received in a timely manner,” said Mohan Mendis, EASL chairman at the association’s recent AGM.

He said the (VAT) knock-on effect has been a reduction of competitive strength as a result of higher interest and administrative costs. “The emerging picture is that the whole system of value-added tax has been a failure in this country due to the breakdown in the administration. The very purpose of zero-rating exports have been negated as a result of the breakdown of the refund mechanism which is an integral part of any successful VAT regime,” he added.

Mendis, analysing the country’s positive export performance for the first half of 2006, said he hoped growth figures for the rest of the year too would be positive.

He said the most important challenge the country is constrained to contend with next in importance to the fragile peace process is the oil shock of 2005 with petroleum prices reaching $75 per barrel.

“It is … imperative that plans and designs are urgently formulated and more importantly implemented for accelerated growth in export performance which is the only way that the country could contend with an emerging, worsening overall economic scenario.”

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