State Minister of Finance Eran Wickramaratne says, in the past two years, the Government has set up two pillars for the future success of the country-one is the pillar of democracy, the other is reconciliation. In an interview with the Sunday Observer, the Minister said, at present, democracy has been strengthened, the Right to Information Act passed, and Presidential powers reduced through the 19th Amendment to the Constitution. Today, there is no cultural impunity and the judiciary functions freely, which is crystal clear. The other pillar is reconciliation. After a protracted internal conflict, we are now trying to transit to a post-conflict society and several measures have been taken in this regard. The Minister went on to say the forthcoming budget will strengthen the national economy, local business, local entrepreneurs and local manufacturing industry and added that the Government’s commitment to education and health with enhanced expenditure will be a major part of the Budget.
Q. The budget is due to be unveiled on November 9. Can you give us a brief outline of the benefits that are likely to be given to the public as well as steps to boost the economy?
A. I would say, much has already been accomplished in bringing micro economic stability, particularly, in terms of reducing the Budget deficit. We hope to reduce the Budget deficit further over the coming year and bring it to about 4.5 percent of the GDP. Revenues have gone up from 11.5 percent to 14.5 percent of GDP and we expect it to go higher next year. The new Finance Minister Mangala Samaraweera has said, direct taxes are about 18 percent and indirect taxes about 82 percent. He has a goal to increase the direct taxes to about 40 percent and to bring down indirect taxes to 60 percent. It is an important goal. Minister Samaraweera has said, this is to create a more just society, where the burden of tax carried by somebody earning Rs.20,000 and one earning Rs.200,000 a month, is the same.
Therefore, we must provide relief to those who are in the lower income bracket. That is another direction he has set for the future. We have been working on some reforms at present where stability is one pillar and reform the other. We have introduced the new Inland Revenue Act. So the specific measures that would be taken in the Budget are under discussion and it will be a Budget that will strengthen the national economy, local business, local entrepreneurs and local manufacturing industry. It will be a Budget which will encourage investments, create more employment and also favour more gender sensitive situations where it will inspire more women to participate in the economy. It will also encourage exports. The Government’s commitment to education and health with increased expenditure will be another important part of the Budget. The reforms will continue.
Q. What is the response from the private sector to the call for budget proposals, will some of the proposals be incorporated in the Budget 2018?
A. We are basically in wide consultations and everybody’s suggestions and views are being entertained. We did the same process in the preparation of the Inland Revenue Bill and are following a similar process, talking to industry, entrepreneurs , chambers and various stakeholders.
Q. Will the public be burdened with new and additional taxes after the budget, will they get a respite from the high cost of living through the budget?
A. The new Inland Revenue Act has set out the income taxes. Therefore, it brings a level of certainty into the tax system. I think over the medium term, there has been some certainty. So the emphasis is, those who can pay should pay and others should get some relief.
Q. Are there any benefits from the budget to the SME sector?
A. I can’t talk about any specific benefits, I can only talk about the principles. We have already announced various loan schemes for small and medium industries, to help them venture from supplying to the local market and go into exports. Some of the schemes have already been announced and the Budget will further strengthen that process.
Q. There are lots of misconceptions about the Inland Revenue Act to the effect that it will hit the average office workers very hard. What are your comments on the new Act?
A. It is not true. The Inland Revenue Act has now become law. Actually, the tax-free threshold has gone up from 650,000 per annum to 1.2 million per annum and if you earn up to Rs.100,000 per month, you don’t have to pay any income tax. After that the next slap is that you will have to pay only 4 percent of your additional income above Rs.100,000 a month. So it gives a lot of relief to the people. So that is a misconception. In the corporate sector, Sri Lanka has a corporate tax of only 28 percent and when one looks at individual taxes, we have an individual tax of 24 percent.
I would like to say that Sri Lanka’s taxes are still very low, compared to other countries in the region. If we look at individual taxes, we have 24 percent tax, which is very high in all other countries in the region. The countries which have a low corporate tax have a much higher individual tax than we. I think we are still a relatively low tax levying country.
Q. Recently, the President and the Prime Minister unveiled Vision 2025 which details the Government’s economic vision for the next 8 years. What are the main features of this program and why is it so important?
A. In the past two years, we have built two pillars for the future success of the country. One is the pillar of democracy. At present, democracy has been strengthened and the Right to Information Act passed, while Presidential powers have been reduced through the 19th Amendment to the Constitution. There is no cultural impunity now and the judiciary has been functioning freely, which is quite evident. The other pillar is the pillar of reconciliation. From a conflict ridden society, we are now trying to transit to a post-conflict society. Several measures have been taken regarding this.
The Office of Missing Persons has been established. We have even rebuilt our relationship internationally. The ban on fish export to Europe has been lifted and GSP Plus restored. Lands occupied during the conflict and taken over for military purposes have been given back to the private owners. Maybe, things have not happened at the pace desired by some, but it is an ongoing process. On the pillars of democracy and reconciliation, the 2025 Vision is about building a better, stronger economy. Vision 2025 sets out the broad road to a stronger economy. The significance is that the SLFP and the UNP have agreed on what that road is.
Q. What is the impact on the economy through the restoration of the GSP Plus facility and the fish export to the EU?
A. The fish exports to EU in 2014 amounted to US$ 104 million. It plummeted to US$ 26 million in 2015 after the ban. In 2016, it climbed to US$ 32 million and we expect it to climb by another 30 percent in 2017. So, it is rapidly gaining back the lost income on exports. This year it will grow about hundred percent year on year. It is too early to measure the impact on the restoration of the GSP Plus facility. We just say that we can now export another 7,000 products and are one of the few countries in Asia that has been given the GSP Plus. But, it is a little early to comment. Among the 7,000 products exported to the EU are rubber products, tea, gems, diamonds, jewelry, machinery and mechanical appliances.
Q. The import revenue has fallen far below budgetary projections, with diminishing exports. What is the short and long term impact on the economy?
A. As you know, earlier in the year, we had few exogenous issues unexpectedly. We had a drought in certain parts of the country and then we had floods in another part. Those were unexpected, due to which, there is obviously some disruption in the economic activity, but in the past three months, the economy is showing a pick up and a growth.
Q. Are you happy with the performance of this Government or do you think a change of roadmap is necessary?
A. As I said earlier, this Government has done considerably well in establishing some of the things it promised, such as, restoration of democracy and promoting reconciliation. Economic growth can be better and macro economy is now stable. One of the challenges in the coming years is our debt management. I think the investments are beginning to come in and we have signed the Hambantota Port agreement project which is a large investment. We have several other smaller investments as well. The construction and tourism industries are booming. Lots of smaller boutique hotels are coming up. Tourism has climbed rapidly from 1.5 million and going up gradually to 2.5 million tourists per annum. So the signs are good and we hope to build a stronger economy within the next three years.
Q. People are disillusioned that political bigwigs of the Mahinda Rajapaksa regime have not been prosecuted for their misdeeds except one or two. What is the delay? What measures could be taken to expedite these cases?
A. What we have done are investigations. We expect the judicial process to take over. Some cases have been instituted and some judicial verdicts given and we are just at the beginning of that. I expect, over the next couple of years more and more cases will be taken before the judiciary and verdicts given. So while it hasn’t gone at the pace of the people’s expectations, it certainly is going in the right direction, and justice will be meted out.
Q. Is there any truth in the Joint Opposition’s protest that the 20th Amendment to the Constitution is a calculated move to postpone Provincial Council elections and deny people’s franchise rights?
A. The 20th Amendment was challenged in the Supreme Court and the court said that if you are to go ahead with it you have to go for a referendum. The intention of the 20th Amendment was to hold all Provincial Council elections on one day which was a promise given in our election manifesto. The other goals we are trying to achieve- one is to make sure that the representatives are responsible for a geographical area by introducing wards in the local administration and the electorates in the provincial government. The other is, that in the local government also we have made it a necessity to have at least 25 percent of female representatives. We did the same on Wednesday (September 20) in Parliament by introducing a provision to provide 25 percent of seats for women even in the Provincial Councils. This is a major step forward to increase women’s representation. Sri Lanka has one of the lowest political representation of women in the whole region. We have rectified that situation. Another good move of the electoral reforms is that the area in which a candidate needs to work and the removal of the preferential votes cuts down the cost of the election. Thereby, the dependency of the elected representatives on their donors would decrease, which would augur for a better political culture. In the future, we will also bring laws to regulate election donations and expenditure.
Q. Strikes, demonstrations, protests and the like have become the order of the day and many people claim the Government is drifting rudderless. How would you analyze this scenario?
A. I think Sri Lankans have to get used to democracy after 10 years of authoritarian rule, where the people had to go when they were told to go and come when they were asked to come. They couldn’t freely express their views or demonstrate them. That era is gone. Even the media was scared to report against the ruling authorities of the time. Today, it is completely different. The people can express themselves, protest, and the media is free to report. Sometimes, media reports criticize the Government. That is permissible in the new order. But, it is not to be taken as a weakness. It’s really a strength of the new Government that it will not be intimidated, or bow down to protests. It will only be sensitized to taking into account public opinion, and those enjoying their freedom must do so with responsibility, including the media.