Exporters decry ‘huge gamble’ with economy

From left: Sri Lanka Association of Manufacturers and Exporters of Rubber Products Chairman Pushpika Janadheera, Exporters Association of Sri Lanka Chairman Nalaka Ratnayake, Sri Lanka Apparel Exporters Association Chairperson Rajitha Jayasuriya, National Chambers of Exporters Secretary General/CEO Shiham Marikar, Tea Exporters Executive Chairman Ganesh Deivanayagam, and JAAF Secretary General Yohan Lawrence - Pic by Pradeep Pathirana

• Urge delay of Simplified Value Added Tax removal

By Nishel Fernando

Sri Lanka’s top export bodies yesterday sounded the alarm over government’s decision to eliminate the Simplified Value Added Tax (SVAT) system on October 1, warning that the new risk-based refund mechanism is untested and unprepared, posing a significant threat to the nation’s export stability.

At a joint press conference held in Colombo, industry leaders described the move as a “huge gamble” that could trigger a severe cash flow crisis and undermine the government’s own export-led growth agenda. 

Representatives from associations including Joint Apparel Association Forum (JAAF), Sri Lanka Apparel Exporters Association (SLAEA), Tea Exporters’ Association (TEA), and National Chamber of Exporters (NCE) collectively urged authorities to postpone the transition until a fully proven and robust digital refund system is operational. 

Setting the context, JAAF Secretary General Yohan Lawrence articulated that the core of the issue lies in the lack of confidence in the Inland Revenue Department’s (IRD) ability to process an estimated Rs. 25 billion in monthly VAT refunds to exporters within the legally mandated 45-day window. 

He noted that for the apparel sector alone, this amounts to around Rs. billion per month that would be locked up, creating immense pressure on cash flows.

This lack of confidence is fueled by significant digital unreadiness. According to Rajitha Jayasuriya, Chairperson of the SLAEA, a crucial pilot project for a temporary e-invoicing system has not even commenced properly. She revealed that a URL provided by system developers to test the API was faulty, and a new one is still pending, making it highly uncertain if a November deadline for the pilot can be met.

Detailing the broader economic impact, NCE Secretary General Shiham Marikar stated the impending removal has created a “huge panic” among the exporter community.

He explained that many companies, including large ones, operate on very thin margins and cannot afford to have their cash blocked, which would force them to take on costly loans. He also warned that local suppliers are at risk, as exporters may choose to import raw materials directly to avoid the refund hassle, thereby discouraging Foreign Direct Investment (FDI).

The refund mechanism itself is fraught with systemic flaws, as highlighted by Nalaka Ratnayake of the Exporters Association of Sri Lanka. 

He explained that the process relies heavily on a manual and error-prone data verification system between Sri Lanka Customs and the IRD. Since multiple parties manually update the data, mismatches are likely, which would automatically halt refunds. “The delays in refund will be a certainty, it’s not a possibility,” Ratnayake stressed.

While acknowledging the SVAT removal is an IMF directive, Devanayagam Ganesh of the Tea Exporters’ Association argued that the IMF also requires a valid and functional system to be in place. The industry pointed to the government’s recent decision to delay a new tax on digital services which was another IMF recommendation as a precedent for postponing policies when systems are not ready.

Furthermore, the move reopens the door to corruption. The industry veterans recalled the Rs. 3.9 billion VAT fraud that occurred prior to the introduction of SVAT, which was designed specifically to eliminate such cash-based corruption.

Despite repeated discussions with policymakers, the government remains firm on the October 1st deadline. The exporters’ unified plea is not to avoid the tax but to ensure a functional system is in place first. (NF)