Sri Lanka’s Apparel SMEs Struggle amid New VAT, Financing Barriers

Sri Lanka’s small and medium apparel enterprises (SMEs), the hidden backbone of the country’s export sector, are facing mounting challenges due to new government policies and limited financial access. While large exporters continue to thrive, smaller producers supplying trims, accessories, and specialised services report rising costs and liquidity constraints, threatening their survival.

A major concern is the recently imposed 18% VAT on imported raw materials, previously exempt for export production. SME owners say the upfront tax strains cash flow, delays orders, and prevents investment in technology or automation. Access to finance remains a critical hurdle, with banks demanding heavy collateral rather than supporting loans based on business projections.

Industry experts warn that without targeted government support, shared R&D facilities, and digital adoption programs, these SMEs risk being left behind. Strengthening financial support, policy frameworks, and export promotion initiatives is vital to ensure the competitiveness and sustainability of Sri Lanka’s apparel sector.

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