End of SVAT and transition to risk-based VAT system

AFTER 14 years of operation, the Simplified Value Added Tax (SVAT) system will be replaced on 1 October by the typical VAT refund system like in most of the countries.

- 

For almost a decade, a number of Governments announced their intentions to abolish SVAT, but staunch opposition was expressed towards changing the status-quo by trade/business associations, especially the exporter community.

Ending more than a decade-old mechanism, which is strongly endorsed by the overwhelming majority of the island's business community, is politically quite challenging and hence, the changeover was continuously delayed by one Government after the other in response to extensive appeals from business chambers. Nevertheless, repealing SVAT was intensely insisted by the IMF and undertaking the reform is considered as a key requirement of the Extended Fund Facility arrangement with the multilateral lender.

The outgoing system was introduced in 2011 with the objective of allowing businessmen to avoid paying VAT upfront during B2B transactions and then spending a considerable amount of effort and time to obtain refunds from the Inland Revenue Department (IRD), which is known for its lethargy and inefficiency. Due to the absence of an effective and credible mechanism for VAT refunds, trade chambers repeatedly opposed doing away with SVAT.