SVAT Ends After 14 Years: Traditional VAT Returns

COLOMBO (News 1st); The Government of Sri Lanka will officially abolish the Simplified Value Added Tax (SVAT) system starting October 1, 2025, reinstating the standard VAT mechanism and introducing a risk-based VAT refund system for the first time in the country’s tax history.

SVAT was introduced in 2011 as a response to widespread VAT fraud, delays in exporter reimbursements, and non-compliance in refund claims. 

Under SVAT, businesses did not pay the VAT portion in cash to suppliers but instead issued credit vouchers, resulting in paper-based transactions with no direct cash involvement.

With the repeal of SVAT, businesses will now be required to pay the full VAT amount (currently 18%) at the point of purchase. 

For example, a product priced at Rs. 100 will now cost Rs. 118, inclusive of VAT. Exporters and eligible businesses can claim refunds based on their risk rating, which will be determined by the Inland Revenue Department.

“SVAT will be repealed from October 1, and the traditional VAT system will be reinstated. Refunds will be issued based on a risk-based rating system, which is entirely new to Sri Lanka. Taxpayers will be evaluated based on their compliance behavior, including timely registration, accurate reporting, and prompt payments,” said Commissioner Priyanka Dissabandara of the Department of Inland Revenue.

Under the new system, taxpayers will be categorized into three risk levels:

Low Risk: Refunds issued without pre-verification
Medium Risk: Refunds issued without pre-verification, subject to post-verification
High Risk: Refunds issued only after pre-verification

Regardless of category, all refunds will be processed within 45 days, ensuring faster and more transparent service delivery.