- Burden Of Proof On Supplier
The unfairness of the law, where the onus of proof is placed on indirect exporters and suppliers to indirect exporters, to prove that the goods and services supplied by them to the end user who is the exporter, were wholly used for exports in order to avoid being penalized, was highlighted at a tax seminar on Monday.
Mohan Mendis, a former chairman of the Exporters Association of Sri Lanka who moderated that seminar told this reporter, the recommendation made by the exporter representatives to the Tax Department at the seminar was to use the credit voucher (CV) given by the exporter to the supplier as a declaration that the former has received those goods and services free of VAT, thereby passing the burden of proof that those goods and services procured were wholly used for exports, from the supplier to the exporter.
“But as the law currently stands, the onus is placed on the supplier to prove that his supplies were used by the exporter wholly for exports, otherwise there may be a possibility, say in the event of leakages to the local market by the exporter, that the 12% suspended VAT on the exporter may be recovered from the supplier instead,” he said.
But if the CV is used as a declaration by the exporter, then the burden of proof would pass from the supplier to the exporter, as, ipso facto it should, said Mendis.
The supplier has no control as to what the exporter is doing with the goods and services procured by him.
The CV, as it now stands, is only used as a guarantee to exempt sub suppliers to export suppliers from paying VAT. The request made by the discussants at that seminar was to go one step further by using that certificate as proof that the supplier has delivered such goods and services to the exporter, thereby passing the burden of proof wholly to the exporter, and not to the supplier, as to whether he made the export or not.
Mendis said that the principle behind the VAT exempt or zero rated VAT regime is that exporters should be exempt from paying tax as that may erode the country’s export competitiveness.
He further said that VAT and its predecessor GST were consumption taxes and are essentially applied to local consumption and not for exports.
The present regime, known as the simplified VAT regime (SVAT), replaces its predecessor the VAT refund regime. It not only covers exports, but infrastructure development projects as well.
In the case of the former regime, exporters, indirect exporters and suppliers to indirect exporters had to “queue” at the Tax Department to obtain their refunds which led to abuse.
Some of those refunds are pending since 2003, said Mendis.
However, under the new regime, no refunds are involved, with the CV acting as proof that such goods and services procured by the supplier were wholly for export, if not a percentage of which were for exports, thereby relieving the players involved in the supply chain from paying the 12% VAT, a tax that is applicable for local consumption only.
In the case of exporters, they are in any case exempt from paying tax under the new regime.
The current scheme despite its drawbacks, is much better than the VAT refund scheme, said Mendis.
Inland Revenue Department Deputy Commissioner General Mrs. Mallika Samarasekera in her speech said that they have brought down the backlog of VAT refund cases from 12,000 to 5,000 during the past 1½ years.