Sri Lanka's vital apparel export sector faces potential disruption as the Joint Apparel Exporters Association Forum (JAAF) has raised serious concerns about the government's proposed removal of the Simplified Value Added Tax (SVAT) system. A hasty transition without a robust, well-tested alternative could trigger significant cash flow problems for exporters, jeopardizing the industry's stability, warns JAAF.
The core issue revolves around the VAT refund process. Under standard VAT regulations, exports are zero-rated, allowing businesses to reclaim input VAT. However, chronic delays in refunding these credits in Sri Lanka forced the adoption of the SVAT system. Now, the government's plan to replace SVAT with a risk-based refund mechanism has triggered alarm bells within the apparel industry.
JAAF had previously championed a digitally driven VAT refund solution, emphasizing efficiency and transparency through minimal human intervention. The association fears that a poorly managed transition will strain exporters' cash flow, disrupt operations, and tarnish Sri Lanka's reputation as a reliable sourcing destination, particularly in a global market where supply chain stability is paramount.
The apparel sector's contributes over 40 per cent to the nation's total merchandise exports. Maintaining the industry's competitiveness and boosting investor confidence hinges on a seamless and transparent transition from SVAT. JAAF emphasizes on the importance of timely VAT refunds and a reliable mechanism to prevent delays, safeguarding exporters' liquidity.
The association urges the government to engage closely with industry stakeholders, ensuring a smooth VAT transition that incorporates efficient digital refund processing to prevent disruptions.
Despite these concerns, JAAF welcomes the government's inaugural budget, recognizing its focus on export-driven growth, investment facilitation, and policy consistency. The budget's commitment to economic stabilization and a competitive business environment is seen as a positive step for the textile and apparel sector.
JAAF also applauds the government's efforts to expand Free Trade Agreements (FTAs), align with the industry's strategic goals of protecting market access, and pursue new global partnerships. Initiatives like the National Single Window, e-cargo tracking, and customs law revisions are deemed crucial for enhancing the ease of doing business. Measures such as revisiting the Economic Transformation Act and introducing the Investment Protection Bill are expected to bolster investor confidence and propel export growth.
While expressing optimism about the budget's direction, JAAF reiterates its apprehensions regarding the SVAT removal. They emphasize the necessity of a well-tested alternative, a smooth transition, and continuous engagement with industry stakeholders to ensure policy decisions reflect the realities of the business environment. Clarity on tax administration, timely trade facilitation, and sustained focus on export competitiveness are vital for achieving ambitious export targets.
As Sri Lanka strives for sustainable economic recovery, the apparel industry remains committed to collaborating with policymakers to implement effective reforms, ensuring the nation's export sector remains resilient and globally competitive.
