Sunday Nov 16, 2025
Sunday Nov 16, 2025
Friday, 26 September 2025 00:30 - - {{hitsCtrl.values.hits}}
By Charumini de Silva
With just five days to go before the Government abolishes the Simplified Value Added Tax (SVAT) regime, leading export associations yesterday voiced deep concerns and warned of a looming cash flow crisis that could choke the country’s $ 19 billion export target for 2025.
At a joint press briefing, representatives from a range of key export industries stressed that while the move is framed as aligning with International Monetary Fund (IMF)-backed reforms, the absence of a tested and functioning VAT refund mechanism threatens to withhold nearly 8% of export earnings or about $ 80 million each month from the sector.
Noting that exporters fully support the Government’s revenue recovery efforts, they claimed even a 45-day delay in refunds, let alone longer lags that have historically stretched for years, would impose crippling financing costs, undermine competitiveness against regional rivals, and derail investment at a time when Sri Lanka desperately needs foreign exchange.
Joint Apparel Association Forum (JAAF) Secretary General Yohan Lawrence reaffirmed its commitment to working with the Government as it prepares to remove the SVAT scheme on 1 October, whilst stressing a seamless refund mechanism is critical to maintaining industry stability.
“Ensuring refunds within 45 days will make the difference between continuity and disruption for thousands of exporters. We respectfully urge that implementation be phased or deferred until systems are fully proven, as was the case with VAT on digital services,” he added.
He noted that the industry has been in continuous dialogue with policymakers on the transition, highlighting potential challenges and the importance of timely solutions. The JAAF is encouraged by the repeated assurances from the Inland Revenue Department (IRD) that the systems are ready to do the refunds sooner than the legally mandated 45-day window, but notes that there was “no trial done” on this to demonstrate the ability of the same.
The apparel sector, which contributes to half of the country’s export earnings, estimates that around Rs. 12 billion will be paid in VAT to the IRD once the SVAT is removed. “Exporters are entitled to refunds of this amount within 45 days. Timely refunds are therefore critical to managing cash flows in an industry already under pressure from declining global prices and US reciprocal tariffs,” he added.
Lawrence also said the removal of SVAT will directly impact suppliers to the industry. The deemed exporters, who have helped build a $ 1 billion raw material base in Sri Lanka, will face immediate competitiveness challenges.
“First, this has been described as an IMF mandate. But the IMF’s own technical documents note that before such a system is introduced, a pilot must be carried out. That hasn’t happened. If you look at recent attempts to implement digital taxes, for example, many have been delayed because the systems weren’t ready. We don’t believe this measure should be forced through without first ensuring a seamless refund mechanism. Our position is simple: put everything in place, test it, and then implement,” he said responding to a query.
Lawrence said that President Anura Kumara Disanayake has assured exporters that the refund mechanism will work smoothly. “We are asking him to obtain a firm commitment from the agencies responsible. We cannot afford a repeat of the fertiliser crisis, where a hasty decision had massive repercussions,” he added.
Sri Lanka Apparel Exporters Association (SLAEA) Chairperson Rajitha Jayasuriya said exporters have little confidence in the upgraded Revenue Administration Management Information System’s (RAMIS) ability to handle the volume of invoices.
“In response to our requests for an electronic invoicing system, which we actually brought before the President a couple of weeks ago during Budget presentations, we requested that a full allocation be made in the Budget to prioritise the implementation of electronic invoicing within a 12-month period,” she said.
According to Jayasuriya, two major players – MAS Holdings from the apparel sector and Akbar Brothers from the tea industry, had volunteered for a pilot with the IRD on an API integration to the existing RAMIS system. However, as of date this pilot is still not had any significant progress, and even the test URL provided by Singapore’s National Computer System, had errors which they are only rectifying now. We were given assurances that it would be ready by end-November. “As we stand today, we have no confidence that this will happen by November which is very concerning ,” she noted.
She added that while both industries have committed to significant investments, exporters fear deadlines will not be met. “This is a huge concern for the industry and we want to make sure this interim solution is expedited in November at least or, in the alternative, the full-on electronic invoicing solution implemented by end-2026,” Jayasuriya urged.
She said the IMF-proposed pilot project on e-invoicing is yet to commence, raising major concerns among exporters. Despite a month of discussions and active engagement from the Government, including a special adviser appointed by the President, the promised November rollout now appears uncertain. “Importantly, the pilot is not about refunds, but a temporary API plug-in to the existing system, far from a comprehensive digital invoicing solution,” she said.
Jayasuriya warned that Sri Lanka is lagging far behind peers such as India, where even street vendors accept digital payments. “If Sri Lanka is serious about promoting a digital economy, then we must aggressively implement a robust solution. That’s the only way exporters can have confidence that refunds will be processed fairly and transparently. Right now, some refunds have been delayed for nearly 10 years. Imagine what will happen if the current system is scrapped on 1 October without a reliable replacement,” she added.
National Chamber of Exporters (NCE) Secretary General and CEO Shiham Marikar said the move has unsettled exporters, many of whom already struggle with delayed refunds. “Even though authorities promise 45 days, exporters are not confident,” he pointed out.
Marikar stressed that blocking refunds will force exporters to borrow, raising their cost of doing business at a time when labour and energy costs are already high. “With a target of almost $ 19 billion this year and $ 30 billion by 2030, we feel the timing to remove the SVAT in October will not be a way forward. Our request from the Government is to reconsider this, give us more time, and make sure the refund mechanism works 100%,” he appealed.
Sri Lanka Association of Manufacturers and Exporters of Rubber Products (SLAMERP) Chairman Pushpika Janadheera said the SVAT had worked smoothly for years and warned of severe risks if refunds are delayed.
“The Government says it’s a 45-day refund. We clearly understand it’s not 45 days; with return filing timelines, it will take at least 105 days. Exporters are running on a thin margin and no cash is available in the system to tide over this,” he said.
Highlighting the high cost of funding, Janadheera warned competitive countries like Thailand, Malaysia, India, and Vietnam have very low interest rates. “In Sri Lanka, even big organisations pay 9-10%, while Small and Medium Enterprises (SMEs) pay much higher. In this environment, we can’t absorb high finance costs. If money accumulates for six months, exporters will be forced to scale down and orders will shift to competitors,” he stressed.
Exporters Association of Sri Lanka (SLEA) Vice Chairman Nalaka Rathnayake highlighted technical flaws in the data verification process that links Customs, the IRD, and exporters.
“The refund mechanism heavily depends on manual data transfers between agencies. If a Customs officer delays or fails to release data, mismatches arise, and refunds stop,” Rathnayake said.
He stressed the urgent need for full digitisation to avoid costly delays: “Until the proper, accurate, prompt data transfer is guaranteed, refunds will be a daunting task. This is a cost exporters and the Sri Lankan economy can no longer afford.”
Tea Exporters Association (TEA) Chairman Ganesh Deivanayagam underscored the broader risks, drawing parallels to the fertiliser ban debacle.
“When the Government makes a unilateral decision without listening to people who are really facing the problems, the effect can be disastrous. The tea industry was the biggest casualty of the fertiliser ban, with exports halved from 300 million kilos to 150 million. We don’t want a repeat,” he cautioned.
He warned that the VAT refund delays could cripple smallholder farmers, who produce 75% of Sri Lanka’s tea. “If I buy Rs. 100 worth of green leaf, the Government wants me to pay Rs. 18 upfront and promises to refund it after 10 weeks. That means the Government will hold Rs. 10 billion at any given time. Who pays the interest on that? It will eventually be passed on to smallholders, who will earn less and may abandon their gardens,” Deivanayagam explained.
Stressing that exporters are not opposing taxation, he said: “We have been completely ready to pay increased taxes during the economic crisis. But all we ask now is that the refund system is 100% proven before removing the SVAT. Unfortunately, despite assurances, that has not been demonstrated.”
When asked if this was definitely an IMF requirement, Deivanayagam responded: “We have met IMF representatives. They do not specifically dictate which taxes must be applied. Rather, they recommend aligning with international standards. Unfortunately, Sri Lanka does not yet have the infrastructure to support such standards. We have argued that the export sector should not be penalised with blanket measures when the leakage is relatively small.”
