Key stakeholders in Sri Lanka’s tea industry have have raised serious concerns over the government’s proposed removal of the Simplified Value-Added Tax (SVAT) system, warning that it could trigger a serious economic crisis for the plantation sector, affecting the livelihoods of over two million people directly and indirectly employed in the industry.
In a joint statement, the Sri Lanka Tea Factory Owners Association, the All Ceylon Small Tea Estate Development Society, and the Estate Owners’ Association said the proposed tax reform would severely impact both smallholders and factory operators, and could destabilise the country’s already fragile tea economy.
According to the statement, abolishing the SVAT scheme would lead to a potential 18% drop in tea prices at the Colombo Tea Auction, as buyers would be required to pay Value-Added Tax upfront, a shift the industry describes as unfeasible under current economic conditions.
“If these amendments are implemented, small and medium-scale tea growers stand to lose between Rs. 30 and 35 per kilo of green leaf, while factory owners could see their revenue fall by up to Rs. 60 per kilo of processed tea,” the associations cautioned.
The SVAT system, originally introduced to simplify VAT refunds and ease cash flow pressures in the export sector, has been a critical financial mechanism for exporters, particularly in the tea industry, which remains one of Sri Lanka’s top foreign exchange earners.
Stakeholders say that introducing such tax burdens at a time of global instability, particularly in the Middle East which is a major destination for Ceylon Tea, would deliver a blow more damaging than the crisis triggered by the 2021 ban on chemical fertilisers.
“If this policy is enacted, many small and medium-scale growers will exit the industry, jeopardising national production goals,” the statement read.
It further warned that the government’s ambitious target of exporting 400 million kilograms of tea by 2030 will be unattainable under the proposed tax regime.
A high-level discussion on the matter is scheduled to take place at the Ministry of Finance today (30), where industry representatives are expected to press for the continuation of the SVAT mechanism, or at least a sector-specific exemption to prevent collapse.
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