A Sri Lanka rubber traders group has said the government’s decision to abolish the Simplified Value Added Tax (SVAT) scheme from October 1 would cause ‘severe and far-reaching consequences’, and urged it to differ or phase it out.
“Removing SVAT without a tested and operational refund mechanism will trigger widespread financial distress across Sri Lanka’s natural rubber industry, threatening smallholder livelihoods, SME viability, export competitiveness, and foreign exchange inflows vital to the nation’s recovery,” the Colombo Rubber Traders’ Association (CRTA) said in a statement.
Other export chambers have voiced similar concerns.
Sri Lanka’s natural rubber sector supports tens of thousands of smallholder farmers, CRTA pointed out.
“The removal of SVAT will force manufacturers to pay billions in VAT upfront, causing delays in purchasing raw rubber and exerting downward pressure on farm gate prices.”
SMEs within the rubber supply chain — who provide essential raw materials, processing, and services — will be disproportionately affected, the association said.
“With limited access to financing, these businesses cannot absorb the burden of upfront VAT payments, putting many on the brink of collapse.
“Such a collapse would reverse decades of progress in building local value chains, destroy jobs, and erode the industrial backbone of Sri Lanka’s rubber economy.”
Exporters already strained by high operational costs and volatile global demand now face crippling liquidity risks due to uncertainty over VAT refund timelines, it said.
“Without SVAT, these companies will be forced to tie up working capital or resort to expensive borrowing, further squeezing already thin margins.”
“Many companies simply cannot afford to have their cash blocked for 45 days or more,” Harin de Silva, Chairman of CRTA said.
“If this happens, they will be forced to reduce operations, delay payments, or even shift to importing raw materials — putting local suppliers at risk and discouraging foreign investment.”
Although Sri Lanka’s Inland Revenue Department (IRD) has promised VAT refunds within 45 days, CRTA points out that there is a complete lack of confidence in the readiness of the system.
“The proposed risk-based digital refund mechanism is still in its infancy, with crucial components such as e-invoicing yet to be fully implemented.”
CRTA asked the government to:
– Defer or phase out SVAT only after a fully operational and proven digital refund mechanism is in place
– Protect smallholder farmers and rural communities whose incomes depend on uninterrupted market access
– Support SMEs from cash flow shocks that could lead to widespread closures
– Safeguard Sri Lanka’s export economy and preserve urgently needed foreign currency inflows
“Removing SVAT in the absence of a functioning refund system risks plunging the entire value chain into chaos. The
Government must act responsibly and decisively to prevent irreversible damage,” de Silva said.
Source: economynext