Hon. (Dr.) Anil Jayantha - Minister of Labour and Deputy Minister of Economic Development

¶ 01 Hon. Deputy Speaker, on behalf of the Minister of Finance, I respond to the Hon. Ravi Karunanayake.

¶ 02 This is a timely issue. First, on SVAT and VAT: the decision to remove SVAT is not hasty. I draw attention to the 2017 Budget Speech, page 85: “460. I propose to remove the SVAT scheme as it could hardly be called simple. It has become redundant with an efficient and smoothly operational technology driven VAT administration process brought about by the IRD....” “461. A refund mechanism at ports and airports will be introduced for foreigners...” Even then, the claimed “smooth” refund system did not exist in reality. Nonetheless, to your core concern: we are not removing SVAT abruptly. Preparations, stakeholder discussions and training are underway. SVAT has also been used for manipulations; that is one rationale for change. On the other hand, as you note, abolition can create cash flow and liquidity issues for exporters, which we are accounting for.

¶ 03 Capacity building and technology are key. With IMF and other technical assistance, training is ongoing, and required fixes are being incorporated into the IT platform. A detailed plan with a simulation will be introduced by end-June, to test the refund workflow before implementation.

¶ 04 On interest rates (your point 6): monetary economics dictates rates decline gradually via market forces as conditions normalize; they cannot be forced down arbitrarily. The Central Bank and authorities are acting; the yield curve has normalized from the inverted crisis pattern. Shorter maturities (e.g., 91 days) are now around 7 per cent, indicating easing. We acknowledge lending rates to the public remain relatively high; the Central Bank is monitoring. We will review monitoring mechanisms, including with state and private banks.

¶ 05 On tax evasion (your point 9): inefficiencies and leakages exist in any system, but we are not designing the SVAT/VAT refund reforms assuming a fixed “evasion quota.” Planning around evasion risks can itself drive behaviour towards avoidance. Our goal is a transparent, efficient system with zero avoidance as the design target, while recognizing practical limits.

¶ 06 We will not abolish SVAT until we ensure the refund system functions smoothly with the necessary technology. VAT is more efficient than turnover taxes, which create cascading effects; to run VAT effectively, all players must be connected—currently only selected, registered parties are fully on the system. We will expand coverage gradually and implement an extensive, integrated platform.

¶ 07 On stakeholder consultations: beyond exporters and taxpayers, we are engaging all relevant stakeholders. We will proceed gradually and transparently and keep Parliament and the public informed.