The Sri Lanka Shippers’ Council warns that SVAT removal will immobilize exporters’ working capital through prolonged refund cycles, undermining export competitiveness and discouraging investment.
Shippers’ Council warns SVAT removal ties up working capital and undermines export competitiveness
Removing the Simplified Value Added Tax (SVAT) mechanism will significantly weaken Sri Lanka’s export competitiveness. The SVAT removal, the Shippers’ Council cautions, will tie up vital working capital in lengthy refund cycles and raise financing costs for exporters operating on thin margins. Chairman Trisherman Frink said exporters who once benefitted from the SVAT regime will now be forced to pay VAT up front and then rely on refund procedures that have historically been slow and unpredictable.
Those delays risk interrupting cash flow, increasing reliance on costly short-term borrowing, and compelling firms to raise prices. Such outcomes would reduce the price competitiveness of Sri Lankan goods in international markets and could erode long-standing trade relationships. The council warned that small and medium-sized exporters will be especially vulnerable because they typically lack access to affordable bridging finance and have less capacity to absorb refund delays.
Beyond the immediate cash-flow impact, the Shippers’ Council said SVAT removal sends a worrying signal about policy stability at a time when Sri Lanka needs predictable rules to attract foreign direct investment. Investors evaluate jurisdictions on ease of doing business and tax certainty; a sudden removal of an export-support mechanism risks diverting investment to regional peers who maintain clear, supportive regimes for exporters. The council urged policymakers to weigh those wider implications carefully.
Industry and trade analysts point out that SVAT has long functioned as a liquidity safeguard for exporters, removing upfront VAT friction and allowing firms to focus on production, payroll and supplier payments. Rather than scrapping SVAT outright, the council recommended modernizing the mechanism with digital refunds, tighter verification and transparent timelines, or adopting alternative measures such as targeted reliefs that do not immobilize capital. They also called for a formal consultative platform where exporters, tax authorities and government can coordinate changes in a way that preserves competitiveness.
Sectors likely to bear the greatest burden include textiles, garments and food processing — labour-intensive industries that underpin employment and foreign exchange earnings. Weakening these sectors risks ripple effects across supply chains and threatens jobs in regions that depend on export activity. The council argued that export support is not a special favour; it is an economic necessity that sustains growth, employment and balance-of-payments stability.
Global best practice in competitive export economies often uses zero-rating at export or fast, automated refund systems to avoid upfront VAT barriers. The Shippers’ Council said Sri Lanka should align with such practices and avoid policy moves that could increase costs for exporters. The council concluded by urging the government to reconsider the SVAT removal, implement robust transitional arrangements, and prioritize reforms that protect liquidity while maintaining revenue integrity.