Shippers’ Council sees SVAT abolition diverting FDI away from Sri Lanka

• Says SVAT abolition could divert critical investment to competing countries with greater certainty
• Warns upfront VAT payments and refund delays could cripple exporter cash flows and disrupt operations
• Notes SMEs in textiles, garments, and food processing most vulnerable to policy shift
• Says refund uncertainty deepens mistrust between businesses and State, undermining long-term planning
• Urges Govt. to modernise SVAT through digital tools instead of abolishing it outright; recommends improving VAT administration, broadening tax base, and tackling tax evasion

Sri Lanka Shippers’ Council Chairman Trisherman Frink

Sri Lanka Shippers’ Council (SLSC) yesterday urged the Government to urgently reconsider the abolition of the Simplified Value Added Tax (SVAT) scheme as it would erode export competitiveness and investor confidence, deepen the mistrust between businesses and the State and threaten supply chains and livelihoods.

“While we commend the ongoing efforts to reform and modernise 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,” SLSC Chairman Trisherman Frink said.

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 immobilises 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,” the SLSC warned.

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,” Frink noted.

The 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 from loss of competitiveness due to higher financing costs, forcing exporters to increase prices, undermining their position in price-sensitive markets to threats to employment as export industries absorb a significant portion of the workforce. 

Weakening the sector also causes a disproportionate impact on small and medium-sized exporters who lack access to affordable financing and are therefore more vulnerable to refund delays, deepens mistrust between the business community and the state, as historically delayed refunds foster apprehension and uncertainty and the policy inconsistency compromises long-term investment and operational planning.

The SLSC noted that it was 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 minimise 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,” Frink suggested.

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 digitalisation and verification can uphold revenue integrity while safeguarding export competitiveness and liquidity.

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 modernise it with digital tools, enhancing transparency and efficiency. This balanced path will protect vital cash flows without compromising fiscal responsibility.

“The SLSC 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,” the council said.

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,” Frink said.