Export figures are already lower, and if SVAT is done away with without first setting up a viable and efficient refund mechanism, it will drastically disrupt cash flows for all exporters, including those in the apparel industry, the forum said.

“Failure to reconsider this policy will almost certainly exacerbate financial strain on the sector, and further erode Sri Lanka’s export competiveness as funds will inevitably be tied up in refund processes, even in the most efficient systems,” Bandula Fernando, chairman of Sri Lanka Chamber of Garment Exporters, which represents small and medium enterprises (SMEs) with JAAF, in a statement issued by the latter.

Any decision to proceed with abolition of the SVAT scheme in the absence of any tangible progress on speeding up valid VAT refunds would be catastrophic, particularly for the SME sector, Fernando stressed.

“Despite the law requiring for refunds to be made within 45 days, exporters have legitimate VAT refunds due as far back as 2010 and no interest is paid on these delayed refunds…..Such inefficiencies will create insurmountable obstacles for SME apparel exporters, and severely erode cash flows even for larger players,” he noted. 

JAAF secretary general Yohan Lawrence said the decision to remove the SVAT scheme had been made on two ‘incorrect assumptions’: the current system creates revenue erosion and the removal of SVAT would enhance the revenue collection for the state.

“This claim has not been substantiated in respect of the formal apparel sector where the SVAT system is used for the sourcing of intermediary goods for the manufacture of apparel. The industry has been on a journey of backward integration whereby supply of raw materials has moved away from being imported to being manufactured locally. Removal of the SVAT system will reverse this trend, leading to more imports,” Lawrence was quoted as saying by domestic media reports.

Under SVAT, apparel exporters could purchase local raw materials without immediate cash outflows for VAT, promoting the use of domestically produced inputs. With the inefficient refund system, the incentive to buy local raw material decreases.

Fibre2Fashion News Desk (DS)