Sri Lanka’s rubber industry has raised serious concerns over the government’s decision to abolish the Simplified Value Added Tax (SVAT) scheme from 1 October, calling it a move that could destabilise the entire sector and undermine the country’s fragile economic recovery.
The Sri Lanka Association of Manufacturers & Exporters of Rubber Products (SLAMERP) said the removal of SVAT would trigger a severe cash flow crisis across the rubber value chain, from smallholder farmers and SMEs to large-scale exporters with far-reaching consequences for jobs, supply chains, and vital foreign exchange earnings.
“Without SVAT, manufacturers will have to bear billions of rupees in VAT until refunds are processed.
This will delay raw rubber purchases, depress farmgate prices, and ultimately hit the most vulnerable — our farmers,” said SLAMERP Chairman Pushpika Janadheera.
The Association warned that SMEs, which play a critical role in supplying raw materials and processing rubber, will be hardest hit.
Most lack access to affordable financing and are unlikely to survive the added burden of upfront VAT payments, raising fears of widespread business closures.
Large exporters are also expected to face liquidity constraints, particularly given existing challenges such as high energy costs and unfavourable global market conditions.
While the Inland Revenue Department has promised VAT refunds within 45 days, SLAMERP pointed out that no pilot programme has been conducted to test the system’s readiness.
“Removing SVAT without a proven and reliable refund mechanism will disrupt export operations, endanger livelihoods, and threaten the nation’s economic recovery,” Janadheera said.
The Association has called on the government to defer or phase out SVAT removal until robust systems are in place to ensure timely refunds. It also urged authorities to safeguard foreign exchange inflows by ensuring export continuity.
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