Concerned of SVAT Withdrawn in April 2025

The Simplified Value Added Tax (SVAT) system in Sri Lanka has long been a keystone for exporters, providing important liquidity and operational efficiency. As discussions arise about the withdrawal of SVAT, concerns within the export community are getting higher, with many significant negative impacts on their businesses.

SVAT scheme was implemented with effect from 01st April 2011, in terms of section 2(2) of the Value Added Tax Act No, 14 of 2002., the SVAT system was introduced to simplify the VAT process for exporters and zero-rated supply chain operators. It allowed these businesses to defer VAT payments on their inputs, thereby eliminating the need for extensive refunds. This system has been particularly beneficial in maintaining cash flow and reducing the administrative burden associated with VAT refund claims.

Mr. Jayantha Karunaratne – President of the NCE states that when businesses pay VAT upfront and wait for refunds, which can tie up significant funds. In contrast, businesses defer VAT payments under the SVAT system, maintaining better liquidity and financial flexibility. Additionally, in the VAT refund system, refunds can be delayed, causing financial strain and uncertainty. Conversely, the SVAT system minimizes the risk of delays by deferring VAT payments rather than requiring refunds.

Hence, SVAT has helped exporters in several ways, exporters can manage their working capital more efficiently by submitting VAT payments, this liquidity is vital for maintaining operations and investing in growth. Further SVAT system reduces the complexity and time involved in filing VAT refund claims.

The government had previously announced that the SVAT would be repealed on 01st January 2024. However, industry stakeholders including the National Chamber of Exporters of Sri Lanka (NCE) lobbied this matter that Sri Lanka’s exporters would be hit hard if the SVAT system is repealed without a strong value-added tax refund system. exporters would have to pay VAT upfront on their inputs and wait for refunds if there is no SVAT, this could tie up significant amounts of capital in VAT payments, leading to cash flow issues.

The efficiency of the VAT refund system has historically been a concern in Sri Lanka. Delays in refunds could make worse cash flow problems and disrupt business operations. Many exporters have expressed their views about the potential withdrawal of SVAT and as the voice of exporters, NCE also urged authorities not to abolish SVAT without a proper VAT refund system,

Recognizing the critical role that SVAT plays in the export sector, the Cabinet has agreed to postpone the repeal of the simplified value-added tax (SVAT) to the 01st of April, 2025 until a proper VAT refund system is implemented.

Mr. Shiham Marikar – Secretary General/CEO of the NCE stated “As representing the exporters’ community, NCE would like to highlight that we have not received any firm confirmation regarding a proper refund system or the continuation of SVAT after April 2025. If SVAT is withdrawn, exporters will have to revert to the traditional VAT refund system, where they pay VAT upfront and then wait for refunds. Consequently, exporters may still face significant challenges with VAT refunds.

Maintaining a favorable environment for exporters is crucial for export-oriented economic growth and international trade relations. Policymakers must engage with industry stakeholders to formulate a solution that addresses the concerns of exporters while achieving the government’s fiscal objectives. The government must consider these factors and seek a balanced approach that supports the continued growth and stability of the export sector.