Opposition Leader Sajith Premadasa met European Union Ambassador to Sri Lanka Carmen Moreno today (08) for a special discussion focused on Sri Lanka’s decision to suspend the Simplified Value Added Tax (SVAT) system and the multiple challenges faced by Micro, Small, and Medium Enterprises (MSMEs).

The meeting, held at the Opposition Leader’s Office in Colombo, also saw the participation of Dr. Johan Hesse, First Counsellor of the EU Delegation to Sri Lanka, along with senior members of the EU diplomatic team.

Following private discussions, Premadasa, Ambassador Moreno, and Dr. Hesse joined a roundtable with local MSME business leaders who directly presented the difficulties they face in maintaining competitiveness under current fiscal and regulatory conditions.

Both sides explored avenues to ensure a level playing field for businesses, improve policy alignment, and expand EU technical cooperation to strengthen the growth and competitiveness of Sri Lanka’s MSME sector. (Newswire)

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Three entities filed a writ application before the Court of Appeal today (01 Oct), challenging the Inland Revenue Department’s decision to abolish the Simplified Value Added Tax (SVAT).

The Inland Revenue Department recently announced the abolition of the Simplified Value Added Tax and the introduction of the Risk-Based Refund Scheme (RBRS), with effect from 01st October 2025.

According to the Chairman of the Free Trade Zone Manufacturers’ Association, the petitioners claim that the move has been made without first operationalising the legally mandated automated refund mechanism. 

The RBRS scheme aims to facilitate timely and efficient VAT refunds for eligible exporters and projects. While refunds will be issued within 45 days, subject to conditions. 

Refunds will be issued to eligible VAT registrants for taxable periods commencing on or after 01st October 2025, based on a risk-based rating system.

As such, eligible VAT registrants will be evaluated by being classified into three categories: low, medium, and high risk, to determine how refunds are processed. 

Eligible VAT registrants for VAT refunds under the new scheme are exporters, projects, and suppliers to projects. (Newswire)

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The Inland Revenue Department (IRD) has announced the abolition of the Simplified Value Added Tax (SVAT) and the introduction of the Risk-Based Refund Scheme (RBRS). 

Issuing a notice for registered persons for SVAT, the IRD states that the SVAT scheme will be abolished with effect from 01st October 2025 and will be replaced by the Risk-Based Refund Scheme. 

According to the IRD, the RBRS scheme aims to facilitate timely and efficient VAT refunds for eligible exporters and projects. While refunds will be issued within 45 days, subject to conditions. 

The IRD further states that refunds will be issued to eligible VAT registrants for taxable periods commencing on or after 01st October 2025, based on a risk-based rating system.

As such, eligible VAT registrants will be evaluated by being classified into three categories: low, medium, and high risk, to determine how refunds are processed. 

Eligible VAT registrants for VAT refunds under the new scheme are exporters, projects, and suppliers to projects. (Newswire)

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The Joint Apparel Association Forum (JAAF) has raised concerns over the removal of the Simplified Value Added Tax (SVAT) scheme, set to take effect on Oct. 1, warning that untested refund systems could disrupt Sri Lanka’s export sector.

Issuing a statement, JAAF said while the forum is committed to working with the government authorities to remove the SVAT, it has repeatedly highlighted the need for a proven, seamless refund mechanism to safeguard cash flows and maintain industry stability.

The apparel industry, one of the country’s largest foreign exchange earners, estimates it will pay about Rs. 12 billion in VAT to the Inland Revenue Department (IRD) once SVAT ends, JAAF said.

Exporters are legally entitled to refunds within 45 days, but JAAF stressed that delays would put pressure on cash flows and supply chains already hit by falling global prices and reciprocal tariffs from the United States.

Suppliers to the industry — deemed exporters who helped develop Sri Lanka’s USD 1 billion raw material base — are also expected to face immediate competitiveness challenges.

While the IRD has given assurances that refunds will be processed faster than the 45-day legal limit, JAAF said no pilot scheme has been conducted to prove the system’s readiness.

It also flagged unresolved issues with aligning data between Customs, the IRD, and exporters. The industry previously urged the adoption of an e-invoicing solution to ensure a seamless digital refund process, but the pilot project remains at the technical stage and will not be ready before Oct. 1.

“Ensuring refunds within 45 days will make the difference between continuity and disruption for thousands of exporters,” a JAAF spokesperson said, calling for a phased or deferred implementation until systems are fully proven, similar to the approach taken with VAT on digital services.

JAAF said it will continue to work with the IRD, Customs, and other authorities to minimize disruption to export competitiveness during the transition. (Newswire)

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Cabinet approval has been granted for the removal of the Simplified Value- Added Tax (SVAT) scheme effective from April 01, 2025.

According to the Government, the Cabinet had initially given approval 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 the SVAT scheme with effect from January 01, 2024. 

However, representations made by the relevant parties pointed out that drastic issues may erupt in finance flow in relation to individuals, especially exporters, who have been registered under the system at present if the SVAT scheme is repealed without a strong Value – Added Tax repayment system. 

It was pointed out that it is appropriate to repeal the SVAT system step by step until a strong tax repaying mechanism is established. 

Accordingly, the Cabinet approved the proposal presented by the President in his capacity as the Minister of Finance, to submit a proposal for revision of the date of implementation of the relevant provisions to repeal the SVAT scheme from January 2025. 

Amendments were made to the proposal when it was taken up for discussion at the Parliament committee stage discussion on the Value – Added Tax (Amended) Bill. (NewsWire)

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