Friday, September 22, 2023

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Ceylon Chamber warns of dire consequences SVAT abolishment

By: Staff Writer

Colombo (LNW): The Government is planning to abolish SVAT on January 1, 2024, despite strong opposition of the business sector and leading chambers of commerce.

President Ranil Wickremasinghe as the finace minister has proposed abolishing SVAT for a more formal VAT repayment method.

However, Ceylon Chamber raises concerns over govt.’s capacity to handle refund claims without SVAT saying abolishing SVAT could disrupt cash flow in various industries.

The government’s aim of abolishing SVAT was to improve existing inefficiencies rather than abolishing SVAT.

The Ceylon chamber of commerce  emphasised that a decision as impactful as abolishing the SVAT system should not be taken lightly and must be part of a broader, well-thought-out fiscal and economic strategy.

“Given the current economic climate and the potential ramifications on the export industry, we strongly recommend that the government engages in diligent planning, continuous monitoring, and a consultative approach that includes all stakeholders before making such a significant change,” the Ceylon Chamber stressed.

The finance ministry is set to introduce an efficient and proper refunding mechanism   consequent to the removal of simplified value added tax (SVAT) system reverting to normal VAT scheme.

This action has been taken by the ministry to adhere the International Monetary fund (IMF) approved economic reform program, a high ranking treasury official disclosed.

According to tax policy measures stipulated in the program, the fiscal authority is committed to significantly speeding up valid VAT refunds and abolishing the simplified VAT (SVAT) system.

The finance ministry will be revamping the VAT system by removing almost all product specific VAT exemptions, he added.

A resolution pertaining to the Value-Added Tax (VAT) and the Simplified Value-Added Tax (SVAT).will be presented in parliament shortly to revise the provisions applicable to the VAT Act abolishing the SVAT methodology.

Approximately 1.2 percent of the gross domestic product (GDP) from the tax revenue could be increased by reactivating the standard VAT, official document presented to the cabinet indicated.

The Ceylon Chamber pointed out that the move to abolish SVAT comes at a critical time when Sri Lanka has seen a significant dip in exports of over 10 percent in 2023 so far, along with a staggering 19 percent decrease in apparel exports with anticipation for weak external demand to continue.

The existing SVAT system was implemented in 2011 to address long-standing inefficiencies and delays in the VAT refund process managed by the Inland Revenue Department (IRD).

Before SVAT, many exporters were cash-strapped due to delayed VAT refunds—some for up to five or six years.

“Alarmingly, a backlog of long outstanding refunds under the SVAT system itself still remains unaddressed.

This raises questions about the government’s capacity to efficiently handle new refund claims in the absence of the SVAT system, thereby casting doubts over the operational feasibility of the planned move,” the Ceylon Chamber said in a statement.

It pointed out that the elimination of SVAT would immediately affect these exporters and also disrupt cash flow in various downstream industries and suppliers, leading to a ripple effect of financial challenges. 

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