ECONOMYNEXT – Removing the current simplified value added tax (SVAT) system for export factories, without clear well-tested alternative could create cashflow issues for exporters at a time Sri Lanka’s Joint Apparel Exporters Association Forum said.
Under a value added tax system, exports are zero rated and eligible to recover input VAT, but in Sri Lanka long delays in repaying input credits had led to the SVAT system.
“JAAF acknowledges the Government’s decision to streamline the VAT system, including the proposed transition from the Simplified Value Added Tax (SVAT) scheme to a risk-based refund mechanism,” the grouping said in a stament.
“However, there is serious concern over the potential impact of a premature removal of SVAT without a clear, well-tested alternative.
“We had previously advocated for a digitally driven VAT refund solution with minimal human intervention, ensuring efficiency and transparency.
“A poorly managed transition could create cash flow constraints for exporters, disrupt operations, and damage Sri Lanka’s reputation as a stable sourcing destination, especially at a time when global brands prioritize supply chain reliability.”
The apparel sector contributed over 40 percent to total merchandise exports.
“We reiterate that ensuring a smooth and transparent transition from SVAT is crucial to maintaining our industry’s competitiveness and sustaining investor confidence,” the JAAf said.
“Timely VAT refunds and a robust mechanism to prevent delays will be key to safeguarding liquidity for exporters.
“We urge the government to work closely with industry stakeholders to ensure a seamless VAT transition, incorporating efficient digital refund processing mechanisms to prevent disruptions.”
The full statement is reproduced below:
JAAF Welcomes Budget 2025, calls for caution on the removal of SVAT.
The Joint Apparel Association Forum (JAAF) welcomes the new Government’s maiden budget, recognizing its focus on export-driven growth, investment facilitation, and policy consistency. The budget’s commitment to economic stabilization and a competitive business environment marks a positive step forward for Sri Lanka’s textile and apparel sector.
The expansion of Sri Lanka’s Free Trade Agreements (FTAs) aligns with our strategy to protect existing market access while pursuing new partnerships with key global markets. Similarly, initiatives such as the National Single Window, e-cargo tracking, scanners, revisions to Customs law, and improvements in logistics and Customs yards are crucial steps toward enhancing ease of doing business. Measures such as revisiting the Economic Transformation Act and introducing the proposed Investment Protection Bill will further strengthen investor confidence and drive export growth.
We look forward to collaborating with the government on the National Export Development Plan, National Tariff Policy, and the adoption of digital architecture to streamline trade processes.
JAAF acknowledges the Government’s decision to streamline the VAT system, including the proposed transition from the Simplified Value Added Tax (SVAT) scheme to a risk-based refund mechanism. However, there is serious concern over the potential impact of a premature removal of SVAT without a clear, well-tested alternative.
We had previously advocated for a digitally driven VAT refund solution with minimal human intervention, ensuring efficiency and transparency. A poorly managed transition could create cash flow constraints for exporters, disrupt operations, and damage Sri Lanka’s reputation as a stable sourcing destination, especially at a time when global brands prioritize supply chain reliability.
The apparel sector plays a critical role in Sri Lanka’s export economy, contributing over 40% to total merchandise exports. We reiterate that ensuring a smooth and transparent transition from SVAT is crucial to maintaining our industry’s competitiveness and sustaining investor confidence. Timely VAT refunds and a robust mechanism to prevent delays will be key to safeguarding liquidity for exporters.
We urge the government to work closely with industry stakeholders to ensure a seamless VAT transition, incorporating efficient digital refund processing mechanisms to prevent disruptions.
The proposed private sector wage increases should, as indicated, be coupled with the removal of the two Budgetary Relief Allowance Acts so that the National Minimum Wage becomes a consolidated value including all allowances.
The industry apex body further highlights the importance of consistent engagement with industry stakeholders to ensure that policy decisions reflect the realities of the business environment. Clarity on tax administration, timely execution of trade facilitation measures, and continued focus on export competitiveness will be critical to meet the ambitious export targets.
As Sri Lanka positions itself for sustainable economic recovery, the industry remains committed to working collaboratively with policymakers to implement these reforms effectively, ensuring that Sri Lanka’s export sector remains resilient and globally competitive.
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