A group of rubber traders in Sri Lanka has warned that the Government’s decision to abolish the Simplified Value-Added Tax (SVAT) scheme effective October 1 could have “serious and far-reaching consequences.” They urged the Government to either reconsider or gradually phase out the measure instead of implementing it abruptly.
Rubber Industry Faces Financial Strain
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The Colombo Rubber Traders’ Association (CRTA) said in a statement that removing the SVAT without an effective refund mechanism in place would create widespread financial hardship across the natural rubber sector.
According to CRTA, the move threatens the livelihoods of smallholder farmers, the survival of small and medium enterprises (SMEs), export competitiveness, and crucial foreign exchange inflows needed for Sri Lanka’s economic recovery.
The association emphasized that the country’s natural rubber industry supports tens of thousands of smallholder farmers, and that the new policy could destabilize the entire supply chain.
Small Businesses Under Pressure
“The removal of SVAT will force manufacturers to prepay billions in VAT, leading to delays in raw rubber purchases and price pressure at the farm gate,” the CRTA warned.
Small and medium enterprises that provide raw materials, processing, and essential services will be disproportionately affected.
“With limited access to finance, these businesses cannot shoulder the burden of upfront VAT payments. Many could face bankruptcy, reversing decades of progress in developing local value chains, destroying jobs, and weakening the industrial foundation of Sri Lanka’s rubber economy,” the group said.
Exporters Face Liquidity Risks
Exporters, already struggling with high operating costs and volatile global demand, now face serious liquidity risksdue to uncertainty in VAT refund timelines.
Without SVAT, companies will be forced to tie up working capital or borrow at high interest rates — further eroding their already thin profit margins.
CRTA Chairman Harin de Silva stated:
“Many companies simply cannot afford to have their cash tied up for 45 days or more. If this happens, they will be forced to scale down operations, delay payments, or even switch to importing raw materials — putting local suppliers and foreign investment at risk.”
Concerns Over Refund Mechanism Readiness
Although the Inland Revenue Department (IRD) has pledged to process VAT refunds within 45 days, CRTA noted a lack of confidence in the readiness of the system.
The proposed risk-based digital refund mechanism remains in its infancy, with key components — such as electronic invoicing (e-invoice) — yet to be fully implemented.
CRTA’s Recommendations to the Government
The association has urged the Government to:
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Postpone or phase out the SVAT only after the digital refund mechanism is fully tested and operational.
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Protect smallholder farmers and rural communities whose livelihoods depend on uninterrupted market access.
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Support SMEs from sudden cash flow shocks that could cause widespread closures.
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Safeguard Sri Lanka’s export economy and maintain vital foreign exchange inflows.
“Eliminating the SVAT without a functioning refund system risks throwing the entire rubber value chain into disarray. The Government must act responsibly and decisively to prevent irreversible damage,” de Silva warned.