The Hon. Ravi Karunanayake

¶ 01 Hon. Deputy Speaker, I rise under Standing Order No. 27(2) to draw the attention of this House to the Simplified Value Added Tax (SVAT) system, the abrupt abolishment of which will be effective from 01 October 2025, triggering grave concerns across Sri Lanka’s export community; it will significantly impact the export sector.

¶ 02 On 17 September 2025, during a national TV programme, leading export representatives—Mr. Yohan Lawrence (JAAF/EASL), Mr. Shiham Marikar (National Chamber of Exporters), Mr. Jayantha Karunaratne (TEA/CTTA), Mr. Pushpika Janadheera (SLAMERP) and Mr. Sean Van Dort (Sri Lanka Shippers’ Council)—unanimously warned of severe negative consequences.

¶ 03 Their testimony highlighted:

¶ 04 - Cash flow paralysis: Under SVAT, exporters had immediate input VAT relief. With its removal, refunds are delayed a minimum of 105–180 days, forcing exporters to extend an interest-free loan to the State. For SMEs borrowing at 11–20 percent, such delays are devastating. - Increased bureaucracy: A streamlined digital system is replaced with a cumbersome paper-driven process, diverting scarce resources from production and market expansion. - Loss of competitiveness: Exporters are disadvantaged versus Bangladesh, Vietnam, India, Indonesia, Laos and the Philippines, where refunds are faster and more reliable. - Erosion of trust: Abrupt, untested policy shifts damage the investment climate.

¶ 05 Sectoral vulnerabilities: - Apparel: Billions of dollars are tied up, crippling operations. Monthly exports are US$6.8 billion equivalent, with an approximate VAT component of US$1.8 billion—roughly Rs. 2.5 billion off the bottom line. - Tea: Cash delays cascade to smallholders and factories. - Rubber: High-value inputs are blocked, undermining competitiveness. - SMEs and diversified exporters: Facing existential collapse. - Logistics/shipping: The ecosystem is weakened, eroding Sri Lanka’s hub role. - Deemed exporters: A major segment affected by the refund mechanism.

¶ 06 While Government cites fraud and leakage, industry argues targeted audits, digital monitoring and strict penalties would suffice. Instead, a blanket policy “carpet-bombs” exporters, yielding no real revenue, only a cash-flow advantage to the Treasury at the expense of foreign exchange earners.

¶ 07 At a time Sri Lanka must raise exports from US$16–17 billion (2024) to US$36 billion by 2030, as pledged by President Anura Kumara Dissanayake, this risks a self‑inflicted wound.

¶ 08 Therefore, I ask the Hon. Minister of Finance:

¶ 09 1. What immediate measures will prevent refund delays of 105+ days causing crippling cash-flow crises, particularly for SMEs borrowing at double‑digit rates? Today the fixed statutory rate is 7.75 percent, but lending is 15–20 percent.

¶ 10 2. Given SMEs are essential for diversification and growth, what special provisions will protect them from insolvency due to VAT refund delays so they can contribute to the 2030 goal?

¶ 11 3. As exporters are effectively financing the Treasury interest‑free, will an interim digital mechanism guarantee timely refunds until a fully transparent VAT system is operational—either a real‑time VAT system or a temporary measure?

¶ 12 4. How does the Ministry reconcile the US$36 billion export target with a policy industry leaders say will discourage investment, delay operations and erode competitiveness? Will this defeat the President’s targets?

¶ 13 5. What safeguards or transitional support will protect SMEs and deemed exporters—who supply larger exporters but cannot survive prolonged delays—from collapse due to blocked working capital?

¶ 14 6. What is the projected financial benefit to the Treasury from abolishing SVAT, and how does the Ministry justify short‑term gains against larger foreign exchange losses and employment risks from weakened exports and closures? For entrepôt trading there is no SVAT; I am informed of attempts to bring it under SVAT. If that happens, shipping lines, airlines and every sector would be hit. Please ensure a bifurcation between SVAT and entrepôt trading.

¶ 15 7. Why revert to a manual, bureaucratic refund process instead of a real‑time, online transaction‑based VAT system that reduces fraud and preserves exporter liquidity?

¶ 16 8. Does the Government acknowledge that implementing IMF conditions without adapting to local realities risks collapse of domestic production substituted by imports, forcing exporters into import‑dependent survival models merely to meet cash flow and delivery timelines? If so, who is accountable?

¶ 17 This VAT issue may push producers to import and re‑export merely to manage cash flow—a dangerous trend. Please assess this practically.

¶ 18 9. With barely a week before abolition, what recourse or compensatory measures exist for exporters already struggling with domestic constraints and foreign market pressures? Does the Government accept that once a foreign buyer is lost, regaining that market is extremely difficult?

¶ 19 10. How many billions of rupees in VAT refunds are outstanding across all sectors, and what specific time‑bound Action Plan will clear the backlog? I am informed more than Rs. 120 billion in refunds remain due over the last 15 years.

¶ 20 11. Finally, what digital system is being developed to automate and streamline refunds and what is its launch date? Will the Ministry establish real‑time monitoring and commit to revisiting or reversing the policy if adverse outcomes predicted by industry occur?

¶ 21 Thank you.