Free Trade Zone manufacturers perturbed by SVAT termination move

• Urges Prez to call for consultation session with industries directly influencing export sector to share insights in this regard

The Free Trade Zone Manufactures’ Association (FTZMA) yesterday expressed its concerns  regarding the government’s decision to abolish the paperless Simplified Value Added Tax (SVAT) scheme. 

FTZMA, which represents BOI investor companies in both apparel and none-apparel manufactures and exporters in the island, urged President Ranil Wickremesinghe to call for a consultation session with industries directly influencing the export sector to share insights in this regard.

Since the announcement of the Cabinet decision to abolish the SVAT scheme earlier this month, the Joint Apparel Association Forum (JAAF) and Tea Exporters’ Association (TEA) had expressed their concerns regarding the move and asserted it would be detrimental to the exports sector. 

The SVAT scheme will be abolished from 1 January 2024, and will be replaced with a more formal methodology, the government said.

“We are of the strong opinion that abolishment of the SVAT scheme will not only replicate the status of VAT system that prevailed prior to the introduction of this scheme that increased the cost of capital for the business but also will have adverse repercussions on tax payers as well as the tax administration,” said FTZMA in a letter to President Wickremesinghe this week.

“Due to massive refund build-ups could also possibly open rooms for fraud and corruption in relation to VAT refunds as well,” it added.

The BOI export-oriented companies are of the view that the abolition of SVAT will negatively impact the export sector which is already going through hard times under the current global economic climate, resulting in weakening global demand for exports. 

According to FTZMA, the Cabinet decision would not only result in increased administrative costs for all parties, but would also jeopardise company cash flows at a time when most entities are struggling to sustain their business operation due to current economic instability. 

It went on to assert that the economic hardships would continue into foreseeable future and high burden stemming from recent reforms to the tax regime adds to the woes.

“…it is quite crucial to safeguard this viable sector by preserving the current SVAT scheme thereby facilitating the country’s export sector which is expected to attract much needed foreign exchange to the country,” FTZMA said.