A guide to Simplified Value Added Tax

Let’s face it, Sri Lanka’s VAT and SVAT regulations aren’t the easiest to understand. 

Most folks have advisors or accountants to help them navigate through the clutter. But, if you’re a newbie, you may not have all the necessary tools at your disposal. This is where Simplebooks can step in to help. 

In this article, we’ll guide you through the ins and outs of SVAT – and, by the end of it, you should be able to navigate its basics by yourself.

Table of Contents

1. Is there a difference between SVAT and VAT?
2. What is SVAT?
3. Who is eligible for SVAT?
   a. How to qualify as a Registered Identified Person (RIP)
   b. How to qualify as a Registered Identified Seller (RIS)
4. How can you register under SVAT?
5. What is the SVAT process?
6. How to file SVAT in Sri Lanka
7. Are there penalties for not submitting SVAT forms?
8. File your SVAT forms with Simplebooks
9. FAQs

Is there a difference between SVAT and VAT?

VAT (Value Added Tax) is a tax you pay on B2C (business to final consumer) transactions. The VAT rate in Sri Lanka is currently 15%.

SVAT is a voucher system that exempts B2B transactions from paying VAT at the point of transaction.

This sounds a little confusing at first, but the next section should help you understand this better.

What is SVAT?

The first thing you need to know about SVAT is that it only applies to people who take part in B2B (business-to-business) activities. Let’s take a look:

Meet Mangala. Mangala sells construction materials wholesale in Sri Lanka.

Meet Gihan. Gihan purchases construction material from wholesalers like Mangala and exports it to other countries. 

Sales of construction material fall under VAT regulations, once they exceed the VAT threshold (the threshold is LKR 120 million top line revenue). This means that both Mangala and Gihan will have to pay 15% VAT on this transaction. 

However, this wasn’t a B2C (business to final consumer) transaction. It was a B2B transaction (Gihan is selling the construction material he bought from Mangala to other sellers).  Because of this, Mangala and Gihan are eligible for a refund on the 15% VAT amount they paid on the transaction – this is also basically what SVAT is. 

Usually, Mangala and Gihan would have to apply for a refund from the IRD and wait weeks, or months for a response. This isn’t great for businessmen and their cash flow, especially when there are 100s or 1000s of transactions like this happening in the real world. 

To combat this issue, the Government introduced SVAT (Simplified Value Added Tax) in 2011. Think of SVAT as a glorified voucher. This allows businessmen like Mangala and Gihan to issue an SVAT voucher at the point of B2B transactions instead of paying the 15% VAT like they usually would. 

With this, Mangala and Gihan no longer have to initially pay VAT on B2B transactions and apply for refunds afterwards. Instead, they can issue an SVAT voucher and submit it to the IRD as proof of transaction and eligibility. 

In summary, SVAT is a voucher businessmen can issue during B2B transactions that allows them to bypass paying VAT first and then apply for a painstakingly slow refund from the IRD.

Who is eligible for SVAT?

As great as SVAT sounds from what we’ve mentioned in the previous section, not everyone can qualify for it. 

There are two types of people that can access SVAT:

1. Registered Identified Purchasers (RIP).
2. Registered Identified Sellers (RIS).

You need to qualify and register as one of these to be eligible for SVAT. Let’s take a look at the qualifying criteria for each type.

How to qualify as a Registered Identified Purchaser (RIP)

You can apply as a RIP to qualify for SVAT if:

1. You buy over 50% of your stock to export;
2. You supply over 50% of your stock to people that use your stock to manufacture goods for export;
3. You supply more than 50% of your goods/services to SDP (Special Development Projects) during its implementation period;
4. Anyone that is registered under VAT and engages in specific projects recognised by the government. Specific projects are specific or strategic projects you may want to pursue in the country. In order to qualify your project under this, you need to gain approval from the relevant Government ministry;
5. Anyone that’s registered under section 22(7) of the VAT Act. This however only applies during the project’s implementation period;
6. You supply over 50% of your stock to people/companies that provide their services to exporters in order to improve the quality, character or value of whatever goods/services that are being exported;
7. You supply over 50% of your stock to no 01 and 04 of this list.

How to qualify as a Registered Identified Seller (RIS)

You can apply as a RIS to qualify for SVAT if you supply to anyone that is registered as a RIP.

How can you register under SVAT?

If you qualify to register under SVAT, here’s how you can apply

You need to submit an SVAT application form to the Primary Registration Unit of the Inland Revenue Department (IRD) with the following documents:

General Documents   (you need to hand these documents in regardless of what type of company you’re applying on behalf of)	Sole-proprietorship/partnership  (you need to hand these documents in if you’re applying on behalf of a Sole-proprietorship/partnership)	Company (private limited, public limited, etc) (you need to hand these documents in if you’re applying on behalf of the company)
TIN Certificate	Business Registration Certificate	Certificate of Incorporation
VAT Registration Certificate	Photocopy of the NIC of the applicant:  – If you’re applying on behalf of a sole proprietorship, this should be the sole proprietor’s ID – If you’re applying on behalf of a partnership, this should be the precedent partner’s ID	Photocopy of the National Identity Card of the applicant. The applicant should be an authorised representative who has been approved by the Board of Directors of the company. A copy of such approval should be submitted as well.
BOI Registration Certificate (if applicable only)
Photo Copies of National Identity Cards of two people who will be collecting the Credit Vouchers from the IRD
A copy of the approval granted by the Ministry of Finance, if you’re applying on behalf of an SDP
A copy of the gazette notification issued under Strategic Development Project Act No. 14 of 2008 and a copy of the BOI Agreement, if you’re applying on behalf of an SDP
A copy of the approval granted by the Senior Commissioner for VAT, if you’re applying on behalf of a person registered under Section 22(7) of the VAT Act.
Relevant documentary proof, in case of a service exporter under section 7(b) (iv) of the VAT Act. ​​​​​

Here are a few things you need to keep in mind when applying for SVAT:

1. The registration process happens in person, e-registration is unfortunately not available for SVAT yet.
2. As the applicant, you need to be physically present at the IRD to obtain the SVAT registration. However, in the case of registering a company for SVAT, either the applicant or an authorised representative of the company can be present. As for foreign companies, an audit firm or lawyers’ firm can act as the applicant.
3. The status of ‘Registered Identified Purchaser’ (RIP) is only granted to you/your company after the IRD visits your business place.
4. The status of ‘Registered Identified Supplier’ (RIS), will sometimes only be granted to you/your company after copies of audited account statements, copies of bank accounts or a letter from the Grama-Seva Niladhari certified by the Divisional Secretariat is submitted to the IRD. This doesn’t always happen, but it is a possibility. The IRD will request these documents from you if they need to see them.
5. You need to make a request to the IRD through e-services in order to obtain and collect credit vouchers (CRV).

Once the CRV is approved, an email notice will be issued to the respective RIP asking them to visit the IRD for the collection of the CRV.

When you show up to collect the credit vouchers, you need to bring the original SVAT certificate and used credit voucher books to the IRD. CRVs are also only released to people who have been authorised to collect CRVs from the Commissioner General. You also need to bring your NIC or a valid passport when you show up to collect the CRV.

What is the SVAT process?

Despite its technicalities, the SVAT process in Sri Lanka is fairly simple. This is how a typical SVAT transaction would take place:

1. A RIP purchases something (goods or services) from a RIS.
2. The RIS issues an SVAT form 02 (also called an SVAT invoice) (to the RIP) + submits a SVAT form 04 to RAMIS
3. The RIP issues an SVAT credit voucher (to the RIS) + approve the SVAT form 04 on RAMIS.
4. The RIS needs to submit an SVAT form 07 to the IRD at the end of each month. The SVAT form 07 is basically a summary of all the invoices for the relevant month.
5. The RIP needs to submit an SVAT form 06 to the IRD by the end of each month + the VAT tax returns monthly to reduce the cashflow burden. The SVAT form 06 is basically a summary of all the approved SVAT form 04’s (SVAT invoices from the RIS) for the relevant month.

How to file SVAT in Sri Lanka

Every RIS and RIP in Sri Lanka needs to file their SVAT forms with the IRD. Each party has a very specific role to play in the filing process. Let’s take a look:

Registered Identified Supplier (RIS)

Every RIS needs to:

1. Fill in and submit SVAT forms 04 and 07.
2. Upload SVAT forms 05 and 07.

Registered Identified Purchaser (RIP)

Every RIP needs to:

1. Approve the SVAT form 04 submitted by the RIS.
2. Upload SVAT form 06.

There is an order in which this process will take place:

Useful resources:

1. A step by step guide on filing SVAT forms in Sri Lanka.
2. A lecture from the University of Jayawardanepura about SVAT in Sri Lanka.

Are there penalties for not submitting SVAT forms?

Like most Government processes, RIPs and RISs can face penalties for missing SVAT submissions to the IRD. Let’s take a look at the penalties each party could face: 

Penalties for RIS: If a RIS misses out on submitting any of their SVAT forms, the IRD will penalise them by revoking their suspended tax. This means that 100% of whatever VAT that was written off as SVAT will be charged from a RIS as penalty. 

Penalties for RIP: If a RIP fails to approve any of the forms they’ve been assigned, the RIP will no longer be able to make suspended tax purchases. This means that they will no longer be able to write off VAT as SVAT.

File your SVAT forms with Simplebooks

The process of signing up as a RIP and RIS is a little exhausting, especially with all the paperwork and waiting around. Filing your SVAT returns is no better. In fact, it’s most definitely even more exhausting than signing up. Now, this is a little inconvenient if you’re running a business and you have a thousand other things to worry about.

This is exactly where Simplebooks can step in to help you. Our team can take over both the process of signing up for SVAT and filing your returns. We’ll make sure all your paperwork is sorted so you can use your time to actually run your business.

FAQs