Free Trade Zone manufacturers raise concern over Govt.’s move to scrap SVAT

• In letter to President, alleges move will have adverse repercussions; seeks consultation session involving all stakeholders

The Free Trade Zone Manufacturers Association (FTZMA) has in writing to President Ranil Wickremesinghe expressed concern and disappointment over the Government’s decision to abolish the Special VAT scheme from 1 January next year. 

“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 taxpayers as well as the tax administration. Due to massive refund build ups could also possibly open rooms for fraud and corruption in relation to VAT refunds as well,” said the letter to the President by FTZMA Chairman Dhammika Fernando and Secretary Sean Umagiliya.

It said that BOI export oriented companies believe that abolition of SVAT will negatively impact this sector which is already going through a tough time under the current global economic climate resulting in weakening global demand for exports.

 Moreover this decision would not only result in increased administrative costs for all parties and also result in jeopardising company cash flows at a time when most companies are struggling to sustain their business operation due to current economic instability that would continue in foreseeable future and the high burden stemming from recent reforms to the tax regime.

FTZMA said the VAT refunds system existed before introducing SVAT scheme, had severe fraud in the non-export sector, and not among the export companies as exporters use SVAT refunds against voucher systems for purchase of local inputs which are subsequently transformed into finished goods for export. As such they have very little sales locally which reduces the potential for abuse of the system.

Via its letter the FTZMA had sought the President’s personal intervention to call for a consultation session represented by main trade chambers and associations.

It said members of these organisations are directly influencing the export sector in the country and already going through an adverse climate of declining trend in merchandise exports thus impacting on both companies and employees. 

“It is quite crucial to safeguard this viable sector by preserving current SVAT scheme thereby facilitating the country’s export sector which is expected to attract much needed foreign exchange to the country,” said the FTZMA letter to President Wickremesinghe with copies to Treasury Secretary Mahinda Siriwardena, BOI Chairman and Director General.