If you are a business owner in Sri Lanka, it is crucial to understand the recent changes in the country’s tax system. The Simplified VAT (SVAT) Scheme, which has been in place for several years, is being abolished, and a new system called the Risk-Based Refund Scheme (RBRS) is being introduced. This change was effective from 1st October 2025, and it brought significant implications for businesses, especially in managing cash flow and VAT compliance.
This blog will explain what the new system is, how it works, who is eligible, and how businesses can adapt to ensure smooth operations and timely VAT refunds.
Understanding the Risk-Based Refund Scheme (RBRS)
The Risk-Based Refund Scheme (RBRS) works differently from the old SVAT system. Here’s how it functions:
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Pay VAT First: Under RBRS, businesses are required to pay their VAT for the relevant taxable period before applying for refunds.
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Refund Application: Businesses submit a refund claim after paying VAT. The processing speed depends on their risk classification.
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Risk Categorization: The IRD evaluates businesses based on their compliance history, including:
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Timely registration
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Accurate reporting of VAT returns
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On-time payment of VAT
Based on these criteria, businesses are classified into three risk categories:
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Low Risk: Refunds are processed quickly, without pre-verification.
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Medium Risk: Refunds are processed efficiently, usually without prior verification, but may be checked post-refund.
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High Risk: Refunds undergo pre-verification before payment, which may delay cash flow. The system encourages businesses to maintain accurate records and comply with deadlines to ensure faster refunds.
Who Can Apply for Refunds Under RBRS?
The RBRS targets businesses that are major contributors to the economy through exports or approved projects. Eligible categories include:
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Exporters: Businesses whose direct export value exceeds 50% of total supply in the preceding calendar year.
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Approved Projects: Projects sanctioned under Section 22(7) of the VAT Act.
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Suppliers to Special Projects: Companies supplying more than 50% of goods or services to Special Projects (SP) or Strategic Development Projects (SDP) approved by the Minister.
By focusing on these categories, the IRD ensures that VAT refunds support businesses contributing significantly to economic growth.
Benefits of the Risk-Based Refund Scheme
The RBRS brings several advantages for compliant businesses:
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Faster Refunds for Low-Risk Businesses: Companies with a strong compliance record will receive refunds quickly, helping maintain a healthy cash flow.
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Encourages Compliance: Accurate reporting and timely payments improve the chances of being classified as low risk.
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Transparent Evaluation: The IRD uses a scientific, risk-based methodology to evaluate businesses, creating a fair system for refunds.
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Reduced Post-Refund Audits: Low-risk businesses are less likely to face extensive audits, saving time and administrative effort.
How Businesses Can Prepare
To benefit from the new system and minimize delays, businesses should adopt the following practices:
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Timely VAT Registration: Ensure your business is registered with the IRD before deadlines.
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Accurate VAT Returns: Submit precise VAT returns with all necessary schedules for each taxable period.
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Prompt VAT Payment: Paying VAT on time reduces your risk rating and improves refund speed.
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Maintain Records: Keep clear, organized financial records to avoid errors that may increase your risk rating.
By implementing these practices, businesses can ensure they fall under the low-risk category, which allows for faster refunds and smoother cash flow management.
Conclusion
The abolition of the SVAT scheme and the introduction of the Risk-Based Refund Scheme mark a major shift in Sri Lanka’s tax system. While the new system requires businesses to pay VAT first and apply for refunds afterward, it rewards compliant businesses with quicker processing and a transparent evaluation process.
For Sri Lankan business owners, understanding this change and adapting early is key to maintaining healthy cash flow and avoiding unnecessary delays. Start preparing today by keeping VAT records accurate, filing returns on time, and paying VAT promptly to secure your low-risk status.
Need guidance on navigating the new VAT refund system?
Contact Talentspark Consulting today to ensure your business stays compliant, maintains smooth cash flow, and takes full advantage of the Risk-Based Refund Scheme!
📞 769284857 / 742056297
