The apparel sector in Sri Lanka stands as a cornerstone of the nation’s export economy, contributing over 40% of total merchandise exports.
With the unveiling of the new Government’s maiden Budget, the industry has recognized several positive policy directions aimed at fostering export-driven growth, improving investment facilitation, and ensuring a stable economic environment.
However, key concerns remain regarding the transition of the VAT system and its potential impact on business operations.
The Joint Apparel Association Forum (JAAF) has emphasized the need for careful policy execution to maintain industry competitiveness and strengthen investor confidence.
JAAF welcomed the Budget’s emphasis on expanding Free Trade Agreements (FTAs), aligning with the apparel industry’s strategy to preserve existing market access while unlocking opportunities in new global markets.
The introduction of the National Single Window, e-cargo tracking, scanners, revisions to Customs laws, and enhancements in logistics infrastructure are seen as crucial measures that will significantly improve the ease of doing business.
Additionally, policy initiatives such as the proposed Investment Protection Bill and revisions to the Economic Transformation Act are expected to further drive investor confidence and promote sustained export growth.
Recognizing the importance of trade facilitation, JAAF has expressed its willingness to collaborate with the Government on the National Export Development Plan and National Tariff Policy. The adoption of digital solutions in trade operations is particularly critical in ensuring efficiency and reducing bureaucratic delays.
One of the major concerns raised by JAAF is the transition from the Simplified Value Added Tax (SVAT) scheme to a risk-based VAT refund mechanism.
While acknowledging the Government’s efforts to streamline the VAT system, JAAF cautioned that an abrupt removal of SVAT without a well-structured alternative could lead to cash flow challenges for exporters, disrupt supply chain operations, and tarnish
Sri Lanka’s reputation as a reliable sourcing destination. The apparel sector had previously advocated for a digitally driven VAT refund system with minimal human intervention to ensure transparency and efficiency.
JAAF strongly urged policymakers to engage closely with industry stakeholders in designing and implementing a smooth and transparent transition process that minimizes financial and operational disruptions.
Another key aspect highlighted in the Budget was the proposed increase in private sector wages. JAAF supports this initiative, provided it is accompanied by the removal of the two Budgetary Relief Allowance Acts.
This change would enable the consolidation of the National Minimum Wage, simplifying wage structures and ensuring a fair compensation framework for workers.
JAAF also emphasized the need for consistent engagement between policymakers and industry representatives to ensure that policy decisions align with the practical realities of the business environment.
Clear tax administration, effective implementation of trade facilitation measures, and a continued focus on enhancing export competitiveness will be crucial in meeting Sri Lanka’s ambitious economic targets.
As the country navigates towards economic stabilization and growth, Sri Lanka’s apparel sector remains committed to working collaboratively with the Government.
Ensuring a seamless transition in VAT policies, maintaining a competitive business environment, and reinforcing the nation’s reputation as a trusted global supplier are essential for sustaining industry resilience and long-term economic prosperity.
