Tea exporters express deep concern over decision to terminate SVAT from 2024

June, 8, 2023

The members of Tea Exporters Association (TEA), who are responsible for earning over USD 1billion in net tea exports earnings annually, express our deep concern over the decision taken by the Cabinet of Ministers on the 5th June 2023 to terminate the paperless Simplified VAT system.  This current simplified system provides exporters with a significant level of ease of doing business, competitiveness, as well as conserves their cash flows towards export operations.

When the government is working towards improving the Ease of Doing Business, such decisions taken without considering the export sector operations will render this important sector inefficient, uncompetitive and affect our ability to sustain and grow the foreign exchange earnings.

The SVAT was introduced in April 2011 to help the export trade as there were long delays, inefficiencies and misuse in settling the VAT refunds by the Inland Revenue Department under the previous system.

The Tea Exporters are concerned about this decision due to following key factors:

  • Cash flow constraints for exporters as their funds would be blocked for a longer period – adding to our finance costs.
  • Increased costs of operations due to additional overheads on documentation and follow up with IRD and possible need to work with intermediaries and promoting corrupt practices.
  • Such cost increases affect the ability of exporters to pay better prices at the Tea Auction thus affecting the small holder’s livelihood.
  • With no output VAT to set off against the input VAT some parts of the VAT component may have to be factored into the price of export products affecting the competitiveness of value-added tea exports primarily.

When the Government expects the export sector to perform better and achieve increased revenue targets in the coming years, the proposed termination of SVAT will negate all our efforts for enhancing export revenue. The blocking of funds even for a short period would be an added burden on tea exporters as they would be required to borrow more for cash flow requirements from Banks at high cost. Further, the exporters will have to spend their valuable time on following up on cumbersome procedures which is even now causing delays due to past issues with the RAMIS system at the IRD.

The increased tax burden on the export sector along with the highly volatile exchange rate and rupee appreciation, continued high cost of inputs such as electricity and general costs of living, combined with an inefficient bureaucracy causing delays in import of material for re-exports are already making this sector challenged and uncompetitive globally.

The SVAT scheme is now well established and operates smoothly and therefore, we urge the Government to continue with current scheme to facilitate the export trade.

While we appreciate the government’s need to reform the VAT system as part of the IMF conditions, we believe the decision is not well thought through and this can be implemented better by following certain tried and tested methods used in other countries.

  • The removal of SVAT may be done in two stages – initially for all VAT registered persons other than exporters and once the system of refund settlement is fully tested, streamlined, and implemented; exporters may be included with minimum time delay for refunds of not more than 3 weeks.
  • Exporters who may be classified into Star ratings (as done in India) depending on the past records of exports and track record of dealings on the VAT front – may be given a special scheme to use SVAT to be cleared monthly via a special window within the IRD.

We urge the authorities and decision makers within the government to consider the above plea by forming a special committee to study the plight of exporters and the negative effect this may have before implementing such decisions.

 

Tea Exporters Association

8th June 2023