The Joint Apparel Association Forum (JAAF) has expressed deep concern and disappointment over the recent decision to abolish the well-functioning Simplified Value Added Tax (SVAT) scheme.
Representing the apparel industry, JAAF firmly believes that this move will have detrimental effects on the sector, exacerbating the challenges faced by declining exports and putting the cash flows of businesses at risk.
JAAF highlights that the abolition of SVAT will burden an already stressed industry, particularly impacting company cash flows as funds will be tied up in refund systems. This impulsive decision, made without consultation, will have disastrous long-term consequences for the sector's operations.
Moreover, JAAF emphasizes that the removal of SVAT is revenue-neutral to the Department, failing to contribute significantly to the government's revenue targets. Sri Lanka's history with VAT refunds is poor, and the SVAT system has effectively curbed fraud in the non-export sector. Exporters rely on SVAT to purchase local inputs for their exports, minimizing the potential for abuse.
The decision also overlooks the possibility that apparel exporters may resort to importing raw materials instead of purchasing from domestic manufacturers, leading to increased imports and negatively impacting the trade balance.
Additionally, reintroducing a VAT refund system would require significant resources from the Inland Revenue Department, resulting in higher administrative costs for all parties involved.
In light of these concerns, JAAF strongly recommends that the removal of SVAT from the export sector be approached cautiously.
Preserving SVAT for the export sector is crucial to safeguarding the industry from unnecessary internal shocks during a period of declining exports and adverse effects on companies and employees.