The Sri Lanka Shippers’ Council (SLSC) has said that the Government’s decision to abolish the Simplified Value Added Tax (SVAT) scheme could have far-reaching consequences for the country’s export competitiveness, foreign direct investment (FDI) inflows, and overall economic stability.
SLSC Chairman Trisherman Frink urged authorities to urgently reconsider the move, highlighting risks to supply chains, employment, and investor confidence.
“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.
The SVAT scheme, which exempts exporters from upfront VAT payments and instead facilitates streamlined tax credits, has long been seen as a critical support mechanism for Sri Lanka’s export sector—particularly for high-value, labour-intensive industries such as textiles, garments, and food processing.
Removing the scheme, the Council argues, would erode liquidity for exporters already operating on tight margins and long production cycles. These businesses will now face delayed VAT refunds, increasing their working capital requirements and threatening operational continuity.
“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 Council emphasised that policy unpredictability—particularly around taxation—sends the wrong message to international investors at a time when Sri Lanka is actively seeking FDI. It warned that the abolition of SVAT “signals hidden costs and uncertainty” and could push potential investors towards more stable regional competitors.
“This move risks diverting critical foreign investments to economies offering greater certainty and efficiency in tax policy,” the SLSC said.
Beyond the impact on FDI, the SLSC warned of ripple effects across the economy, including higher export prices, weakened competitiveness in global markets, and pressure on jobs, especially within small and medium-sized enterprises (SMEs).
The Council also expressed concern that the decision could deepen mistrust between the private sector and the State, especially given a history of delayed tax refunds. “Policy inconsistency compromises long-term planning and undermines the confidence needed for sustainable growth,” it added.
While acknowledging the need for tax reform, the SLSC called for a more strategic approach—urging the Government to modernise and digitise the SVAT system rather than abolish it outright. It also proposed alternative revenue measures, such as broadening the tax base and tackling evasion.
Globally, many successful export-driven economies operate zero-rated VAT regimes at the point of export, eliminating refund delays and ensuring liquidity. The SLSC notedthat Sri Lanka should align with these practices during its economic rebuilding phase.
“The Government should explore reform, not removal. Strengthening SVAT through digital tools can uphold revenue integrity while safeguarding export momentum,” Frink said.
The Council concluded with a call for structured dialogue between exporters, tax authorities, and policymakers to ensure future tax policy reflects ground realities and supports sustainable economic recovery.
“Supporting exporters is not a special favour—it is a strategic imperative for national progress,” the SLSC stressed.
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