Govt. delays SVAT system abolition to April 2025 due to strong opposition

• Original SVAT abolition date of January 1, 2024, pushed to April 1, 2025
• Phased repeal of SVAT promised with new VAT repayment system
• President seeks Cabinet approval for SVAT abolishing date change
• Govt. acknowledges concerns, cites the need for a strong VAT repayment system

By Nishel Fernando

Amidst strong opposition from exporters and the country’s business chambers, the government has decided to postpone the earlier decision to abolish the Simplified Value-Added Tariff (SVAT) system until April 1, 2025.

The abolishment was originally scheduled to come into effect from January 1, 2024.

The government has also assured that SVAT will be repealed in a phased manner while establishing a strong, new Value-Added Tax repayment system.

This week, President Ranil Wickremsinghe, acting in his capacity as the Minister of Finance, Economic Stabilization, and National Policies, sought the Cabinet of Ministers’ approval to amend the implementation date for the removal of the SVAT system to April 1, 2025. 

This decision aligns with the resolution made during the committee stage of the Parliament’s deliberations on the Value-Added Tax (Amended) Bill.

Earlier, the concurrence of the Cabinet of Ministers had been granted to submit to the Parliament the draft bill prepared by the Legal Draftsman in order to revise the Value–Added Tax Act No. 14 of 2002 including the repeal of SVAT with effect from January 1, 2024.

Echoing concerns raised by exporters and businesses, the Ceylon Chamber of Commerce last week warned that the elimination of SVAT would immediately hit the exporters with cash flow issues, while disrupting cash flow in various downstream industries and suppliers, leading to a ripple effect of financial challenges. 

The existing SVAT system was implemented in 2011 to address long-standing inefficiencies and delays in the VAT refund process managed by the Inland Revenue Department (IRD). Before SVAT, many exporters were cash-strapped due to delayed VAT refunds—some for up to five or six years. 

The government acknowledged the concerns raised by exporters and other businesses on the removal of the SVAT system in particular in the absence of a strong alternative VAT repayment system.

“The representations made by the relevant parties point out that drastic issues may erupt in finance flow in relation to individuals especially the exporters who have been registered under the system at present if the simplified value–added tariff system is repealed without a strong Value – Added Tax repayment system,” the Department of Government Information said.

Against this backdrop, the Cabinet of Ministers this week decided to repeal the SVAT system in a phased manner until a strong VAT repayment system is established. 

JAAF welcomes govt.’s decision 

The Joint Apparel Association Forum (JAAF) yesterday welcomed the recent cabinet approval for the deferment of the Simplified Value-Added Tax (SVAT) scheme, set to take effect from April 1st, 2025.
In a statement to the media, JAAF said is particularly appreciative of the decision to ensure that a ‘strong tax repaying mechanism’ is in place before proceeding with the removal of SVAT.  It stressed that the decision reflects the dedicated efforts of various stakeholders to protect the industry, for which JAAF is appreciative.

“This deferment comes at a critical time for apparel exporters who have been grappling with declining exports and therefore, risk of cash flow disruption if SVAT was removed without a viable refund system being in place,” said JAAF added. Exporters have pointed out that as an appropriate measure towards repealing the SVAT system, a step-by-step approach is required until a strong tax repaying mechanism is established. 

“The deferment offers a lifeline to our sector, ensuring a smoother transition towards a revamped tax framework. We remain committed to working collaboratively with all stakeholders to ensure the industry’s continued growth and prosperity,” said JAAF.