IRD’s new risk-based VAT system promises refunds in 15 days

• The statutory maximum for issuing refunds is set at 45 days, however, the department’s internal target for compliant taxpayers is much faster
• IRD Commissioner stressed the objective is to provide you with an even better system in its place

By Nishel Fernando 

Harshana Suriyapperuma	Priyanka Dissabandara

Eligible exporters with low and medium-risk profiles will be able to receive their VAT refunds within an expedited 15-day period under a new risk-based refund system, which is set to replace the current Simplified Value Added Tax (SVAT) system from 1 October 2025. 

Inland Revenue Department (IRD) Commissioner Priyanka Dissabandara outlined the ambitious plan yesterday, which aims to drastically shorten the waiting period for highly compliant businesses. While the statutory maximum for issuing refunds is set at 45 days, the department’s internal target for compliant taxpayers is much faster.

“We are not simply stopping after abolishing SVAT. Our objective is to provide you with an even better system in its place,” she said, speaking at an official seminar hosted by the Department of Inland Revenue (IRD) in Colombo. 

The move marks a departure from the SVAT system, which was introduced in 2011 following a major VAT fraud incident. Despite its aim to provide quick refunds, SVAT led to dual administrative complexities for both taxpayers and the IRD, and cash refund backlogs persisted. The new framework signals a return to a single, unified VAT system for the entire country.

For taxpayers who may find themselves in the high-risk category, the path to a lower-risk rating and faster refunds is clear and lies in their own hands. The key to improving a risk profile is demonstrating consistent and robust compliance with the Tax Act. The IRD official stressed that a high-risk rating is simply a reflection of a past failure to comply with tax laws. 

To move into the medium and low-risk categories, businesses are advised to take immediate corrective actions by ensuring all future tax returns are submitted by the due date with correctly filled schedules. Settling any outstanding tax payments promptly is also a critical step towards improving a taxpayer’s rating.

“Our ability to receive our refund depends on our behaviour,” Dissabandara noted.

The core of the new system is a sophisticated risk calculation that differentiates taxpayers based on their compliance behaviour. Central to the framework is the “Eligible Exporter” status, granted to direct exporters whose exports constituted more than 50 percent of their total supplies in the previous calendar year. These exporters must file their returns monthly. 

The IRD assesses risk based on several criteria, including a taxpayer’s filing history for timeliness and accuracy, and an analysis of revenue and payment history to check for arrears. The assessment also incorporates third-party data from agencies like Customs and the Central Bank, and considers business longevity, and may involve site visits to verify operations.

For taxpayers classified as low and medium-risk, refunds will be issued first without a pre-audit, followed by a post-verification later. High-risk taxpayers will undergo a pre-verification before the refund is released, though the IRD will still aim to complete this process within the 45-day window. 

The IRD confirmed that the system is finalised and parallel testing is underway, with dedicated units ready for the October 1st rollout. To prepare businesses for the transition, the department will conduct a series of nationwide awareness workshops and provide continuous updates.

Accurate and timely filing key to fast-track VAT refunds: Finance Ministry

Acting Minister of Finance and Planning, Dr. Harshana Suriyapperuma, yesterday emphasised that promptness and accuracy of tax document submissions by businesses will be the deciding factor in speeding up their VAT refunds under a new risk-based digital system set to be launched in October.

The Acting Minister outlined the government’s shift from a manual, often-delayed process to an efficient, transparent, and accountable digital framework. He stressed that while the government has built the necessary infrastructure, the success of the system and the swiftness of payments now rest equally on the shoulders of the taxpayers.

“A large part of receiving your refunds quickly is equally divided between both parties: the Department of Inland Revenue on one side, and the organization you represent on the other,” stated Dr. Suriyaperuma. 

“Our objective is to provide you with the required refunds in the shortest possible time. The accuracy of the information you submit through the system will determine if that period is a week, two, or three.”

The new system, which replaces the previous manual process, operates on a risk-based assessment. Businesses, particularly exporters, will be categorised into low, medium, or high-risk profiles. This categorisation is not arbitrary but is directly determined by a company’s past conduct.

“The basis for this risk-based categorisation was your organisations’ past tax returns,” the Minister explained. 

“Did your organisations submit returns on time? Did you submit returns with correct information? Did you make payments in the correct amount within the correct timeframe? The risk is based on the behavioural patterns of our exporters.”

Businesses that have demonstrated a history of compliant and accurate tax filings will be classified as low-risk and can expect to receive their VAT refunds in a fraction of the time it previously took, with a maximum turnaround of 45 days. Dr. Suriyapperuma highlighted that this move is designed to alleviate the cash flow burdens on companies, which often have to seek external financing for working capital due to refund delays.

The initiative is a core component of the government’s broader national transformation agenda, aimed at enhancing efficiency, combating corruption, and fostering trust in state institutions. Dr. Suriyapperuma noted that the move to a digitised, automated system would minimise opportunities for the kind of large-scale VAT fraud that has occurred in the past.

The Department of Inland Revenue is conducting a series of parallel workshops and awareness programmes to help businesses understand the new system. The  Minister encouraged companies, including those currently in high-risk categories, to engage with the Department to learn the specific steps they can take to improve their risk rating.

“You now have the opportunity to understand how to reduce your risk rating with the IRD,” he said. By taking those steps, you will be able to receive your refunds within the 45-day period by returning to the low-risk category.”

The full implementation of the new system is scheduled for October 1, 2025, following a period of system refinement and parallel testing.