These were firms that failed to "furnish monthly or quarterly returns" and those that have not made claims for refunds "over a considerable period."

Export firms who are 'zero rated' under a value added tax regime is usually entitled to a refund, made up of 'input taxes' paid to suppliers.

In Sri Lanka the value added tax system has been undermined by a system of multiple tax rates where even a firm where output tax could be lower than the rates paid on some inputs.

By dropping firms which are entitled to refunds, the government could increase its revenue collection.

The newspaper quoted a Sri Lanka's Exporters' Association official as saying that delays in VAT refunds were disrupting the cashflow management of firms.

Sri Lanka has progressively undermined the VAT regime, by delaying the inclusion of some sectors into the regime, exempting those that were included, changing rates and imposing a range of new turnover based taxes on which no input credit is given.

A VAT regime works effectively when there is a flat rate (such as 20 percent) and all sectors are included.