ECONOMYNEXT – Sri Lanka exporters collectively have urged the government to delay the removal of SVAT, a tax they have to pay up front when they export before they receive the money from buyers.
The exporters will have to pay interest on cash flow given to the state as a result of charging value added tax on local inputs, following the scrapping of the so-called SVAT scheme, which is a tax payment system based on vouchers.
The government has said the existing SVAT will be removed from October 1.
“The government’s argument that they want to remove SVAT is that some leakages are happening. What we are telling them is if there are leakages happening, don’t carpet bomb all of us. You deal with that. That’s the job of the IRD (Inland Revenue Department),” Shiham Marikkar, Secretary General/CEO at National Chamber of Exporters of Sri Lanka (NCESL).
“That’s their problem. They have to deal with that. You cannot carpet bomb all of the exporters.”
The government has promised to refund the money once settled within 45 days, but exporters say they are not confident about the existing digital infrastructure system including lack of e-invoicing.
“Without the e invoicing, we know that there’s going to be issues. This will open the door to corruption. Because one of the reasons the SVAT was introduced was due to corruption,” Marikkar said.
“The doors could open again to corruption. So here the government is now talking about eradicating corruption. Government is talking about increasing exports. But this move to remove SVAT in October, we feel, will have a negative impact.”
“We are requesting the government to delay this until the e-invoicing and a completely functional digital platform is ready, and the exporters are confident about it.”
“If the government can delay VAT on online businesses, why can’t it delay for exporters?”
Exporters estimate the new move could lock between 25-50 billion rupees monthly in IRD books
The scrapping of the SVAT has been proposed in part due to so-called ‘leakages’ but there has been no evidence to show that leakages have taken place, some exporters have said earlier.
It is also not fair to impose collective punishment on all exporters, without catching and punishing those who are supposed to have mis-used the system, they have said.
Sri Lanka’s IRD has said a simulation will be done to prove that the system works before it is implemented. However, exporters say there was no pilot project done.
Under the current SVAT system, exporters defer paying full VAT on locally procured inputs and avoid the often long delays in VAT refunds, which helps keep working capital free for daily operations.
Without SVAT, businesses will have to pay VAT upfront on inputs and wait for refunds through a refund system that has historically been slow and unpredictable — sometimes taking several months.
This shift would tie up capital, increase borrowing costs, degrade margins, and reduce investor confidence. Sectors like tea, apparel, and small-holder agriculture are especially vulnerable, since many firms operate on tight margins and rely heavily on credit.
Further, stakeholders argue that the removal is being rushed without the substitute systems fully tested.
The exporters’ associations (including the National Chamber of Exporters, the Joint Apparel Association Forum etc.) have repeatedly called for a “cashless, seamless refund mechanism” before abolishing SVAT.
They warn that reverting to pre-SVAT refund procedures will re-introduce excessive paperwork, administrative bottlenecks, and risk of delays that will damage exports’ price competitiveness in global markets.
In import-capacity sensitive industries, the extra VAT upfront cost could lead buyers to shift sourcing to other countries with more favourable tax or refund regimes, depriving local businesses who supply input currently. (Colombo/September 26/2025)