Tax Update: EY Highlights Changes to VAT Risk-Based Refund System 📈

The Inland Revenue Department (IRD) has issued revised guidelines (Gazette Extraordinary No. 2481/17) updating taxpayer risk classifications under the VAT Risk-Based Refund Scheme. These rules replace the September 2025 guidelines and apply retrospectively from 1 October 2025. • Overall Mechanism: The scheme allows key economic drivers, particularly exporters, to receive VAT refunds within 45 days prior to a full audit, following a preliminary IRD review. • New Classification Criteria: Taxpayers are categorized into low-, medium-, or high-risk profiles based on 5 years of historical data. Key factors include: • Tax compliance, filing accuracy, and timely payments. • Refund history and previous tax audit findings. • Operational performance stability and third-party data verification. • Business duration. • Impact on Businesses: • Low and medium-risk taxpayers undergo a basic review, speeding up cash flows for sectors like apparel & textiles and tea that rely heavily on export refunds. • High-risk taxpayers face a strict pre-audit, which EY notes could delay refunds beyond the 45-day window. • Due to heavy emphasis on past audit outcomes, a larger number of taxpayers may now be classified as high-risk.