Following the termination of the so-called SVAT scheme, apparel exporters in Sri Lanka have reportedly stated that they will be required to pay interest on cash flow provided to the state as a result of levying value added tax on local inputs.
Exporters will be divided into three risk categories, according to the Department of Inland Revenue. After submitting returns, low and medium risk exporters will receive refunds without an audit. Based on their prior dealings with customs, inland revenue, and the central bank, some exporters will be classified as high risk. Until an audit is completed, others might have to wait up to six months to receive a return.
Yohan Lawrence, Secretary General of the Joint Apparel Exporters conference, informed an exporters conference at Sri Lanka’s Export Development Board that even if the VAT is reimbursed within 45 days as promised, apparel exporters alone will still be required to pay interest of US $ 8.73 million (LKR 2.6 billion) annually. According to him, this is what would happen if all exporters had a low or middling rating.
According to exporters at the meeting, another consequence will be that they will no longer purchase local inputs and work with home subcontractors because doing so will now be more costly than obtaining imported supplies or hiring subcontractors for factories abroad.
Although several exporters have previously stated that there is no proof that leaks have occurred, the proposal to eliminate the SVAT has been made in part because of alleged “leaks.” They have also argued that it is unfair to punish all exporters collectively without first identifying and prosecuting individuals who are thought to have abused the system.
The establishment of the SVAT system was partly prompted by a well-known VAT fraud that occurred a few years ago.
