ECONOMYNEXT – Removing the SVAT mechanism ties up essential working capital in lengthy refund cycles, and puts Sri Lanka at a competitive disadvantage among peers, Sri Lanka Shippers’ Council has said.
“A system that immobilizes vital working capital through prolonged refund cycles places Sri Lanka at a distinct disadvantage compared to regional peers, many of who maintain supportive export incentives,” SLSC chairman Trisherman Frink said.
“The removal of SVAT sends a discouraging message of policy volatility, signalling that conducting business in Sri Lanka entails hidden costs and uncertainties. Such signals threaten to divert critical foreign investments to competing economies offering greater certainty.”
The Shippers’ Council urged policymakers to reconsider the removal of SVAT in the national interest.
The full statement is reproduced below:
Removing SVAT: Protecting Exporters, Enhancing Competitiveness and Boosting Investment
I write today to urgently highlight the critical implications of the recent government decision to abolish the Simplified Value Added Tax (SVAT) mechanism. While we commend the ongoing efforts to reform and modernize our taxation policies, it is imperative to carefully evaluate the unintended consequences that this change will impose on our exporters, the broader investment climate, and the national economy.
The Essential Role of SVAT for Exporters:
The SVAT system has long served as a vital instrument for exporters by removing the burden of upfront VAT payments and preserving essential liquidity. Exporters operate within narrow margins and extended production cycles, relying heavily on uninterrupted access to cash flow to meet daily operational costs, remunerate suppliers, and sustain employment. The abolition of SVAT means exporters will now be compelled to pay VAT in advance, then rely on refund processes that, despite governmental assurances, have historically been slow and prone to bureaucratic delays. Even
minor delays in VAT refunds risk severe cash-flow disruptions, threatening operational continuity and eroding Sri Lanka’s competitiveness in global markets.
Risks to Investor Confidence and Economic Stability
At a juncture when Sri Lanka is intensifying efforts to attract foreign direct investment (FDI), policy predictability and stability are paramount. International investors assess the ease and reliability of business environments, favouring jurisdictions with efficient, investor-friendly tax frameworks. A system that immobilizes vital working capital through prolonged refund cycles places Sri Lanka at a distinct disadvantage compared to regional peers, many of who maintain supportive export incentives.
The removal of SVAT sends a discouraging message of policy volatility, signalling that conducting business in Sri Lanka entails hidden costs and uncertainties. Such signals threaten to divert critical foreign investments to competing economies offering greater certainty.
Wider Economic and Social Implications
Our export sector remains the backbone of Sri Lanka’s economy, contributing substantially to foreign exchange earnings, sustaining hundreds of thousands of jobs, and supporting extensive supply chains. Weakening this sector now risks a far-reaching ripple effect:
• Loss of competitiveness due to higher financing costs, forcing exporters to increase prices, undermining their position in price-sensitive markets.
• Threats to employment as export industries absorb a significant portion of the workforce.
• Disproportionate impact on small and medium-sized exporters who lack access to affordable financing and are therefore more vulnerable to refund delays.
• Deepening mistrust between the business community and the state, as historically delayed refunds foster apprehension and uncertainty.
• Policy inconsistency that compromises long-term investment and operational planning.
Additional Key Considerations
It is important to highlight that the abolition of SVAT will disproportionately affect exporters in high-value, labour-intensive sectors such as textiles, garments, and food processing—pillars of Sri Lanka’s export portfolio that provide livelihoods to thousands of families and require sustained policy support to remain viable.
Moreover, the transition period following SVAT removal must be managed carefully to avoid sudden shocks. Adequate grace periods, clear communication, and enhanced capacity in tax refund processing are essential to minimize operational disruptions for exporters.
The government should also explore alternative revenue-enhancement measures that do not undermine the export sector, such as improving VAT administration, broadening the tax base, and tackling tax evasion, instead of removing export-support mechanisms.
There is a pressing need to establish a formal platform that facilitates ongoing dialogue between exporters, tax authorities, and policymakers to ensure taxation policies reflect industry realities and are balanced for sustainable growth.
Finally, exporters remain committed to compliance and transparency. Strengthening SVAT through digitalization and verification can uphold revenue integrity while safeguarding export competitiveness and liquidity.
Global Best Practices and Recommendations
Globally, successful export economies adopt zero-rating VAT systems at export points, eliminating unnecessary financial barriers and refund complexities. Sri Lanka, in its current economic rebuilding phase, must align with these globally accepted practices rather than diverging.
Rather than dissolving SVAT, the strategic approach should be to reform and modernize it with digital tools, enhancing transparency and efficiency. This balanced path will protect vital cash flows without compromising fiscal responsibility.
A Call to Action
The Sri Lanka Shippers’ Council respectfully urges policymakers to reconsider the removal of SVAT in the national interest. Supporting exporters is not a matter of special favours; it is about protecting the lifeblood of our economy. Exports drive growth, sustain employment, and generate critical foreign exchange.
For meaningful and sustainable economic recovery, Sri Lanka must provide a clear, predictable, and investor-friendly policy environment. Weakening the export engine by removing SVAT jeopardises national progress and delays our journey to prosperity.
Exports remain Sri Lanka’s strongest engine of growth. Preserving mechanisms like SVAT is essential to fostering a resilient, competitive, and investment-friendly economy.
Trisherman Frink
Chairman, Sri Lanka Shippers’ Council