By: Staff Writer
February 27, Colombo (LNW): The National Chamber of Exporters of Sri Lanka (NCE) has voiced concerns about the proposed removal of the Simplified Value Added Tax (SVAT) system and its replacement with a VAT refund mechanism.
While acknowledging the Government’s commitment to digital transformation and economic modernization, the NCE highlights the potential risks this change could pose to the export sector and urges careful planning.
Impact on the Export Sector
Exporters are a crucial pillar of Sri Lanka’s economy, playing a significant role in achieving the Government’s $19 billion export target.
However, the industry is already facing multiple challenges, such as fluctuating global demand, intense international competition, and domestic operational constraints.
The elimination of SVAT without an efficient refund system in place could further strain exporters, creating financial instability and reducing global competitiveness.
The SVAT system has provided a vital advantage by mitigating cash flow disruptions through VAT offsetting on inputs. This mechanism ensures smoother operations and cost efficiency for exporters.
Replacing it with a refund-based system assumes that digitalization will facilitate timely and efficient VAT reimbursements.
While the NCE supports the Government’s digital economy vision, it insists that the new system must be rigorously tested before full implementation to avoid potential disruptions.
Past Challenges with VAT Refunds
Historically, VAT refund mechanisms have presented significant difficulties, with exporters experiencing prolonged delays and cumbersome administrative procedures.
These inefficiencies have led to cash flow constraints, forcing businesses to seek high-interest loans to meet order commitments, thereby increasing operational costs.
Such setbacks emphasize the need for a robust and reliable refund system that prevents recurrence of past issues.
NCE’s Recommendations for a Smooth Transition
To mitigate risks and ensure a successful transition, the NCE recommends a phased, well-monitored approach, including:
Pilot Testing: A comprehensive pilot project in collaboration with the Export Development Board (EDB) to evaluate system functionality under real-world conditions and identify potential issues before full implementation.
Clear Implementation Timeline: The Government should establish a structured timeline with a transitional period, allowing exporters to adapt gradually without operational disruptions.
Stakeholder Training and Support: Adequate training and technical support must be provided to exporters and relevant stakeholders to facilitate seamless adoption of the new system.
Timely VAT Refunds: The Department of Inland Revenue must guarantee prompt VAT refunds, with clear mechanisms for handling delays and resolving disputes efficiently.
Contingency Measures: A backup plan should be in place to address potential system failures, ensuring exporters do not suffer due to administrative inefficiencies.
Avoiding Irreversible Consequences
Once implemented, reversing a flawed system will be challenging. A poorly executed rollout could undermine exporter confidence in Government policies, exacerbating the sector’s existing struggles. Therefore, all potential risks must be addressed beforehand to prevent any negative repercussions.
Call for Collaborative Dialogue
The NCE urges the Government to engage in meaningful discussions with exporters and other key stakeholders to ensure a balanced approach to the VAT system transition. Any reform must align with the broader objective of strengthening the export sector, a key driver of Sri Lanka’s economic growth.
