Aims at accelerating economic growth | Sunday Observer

Aims at accelerating economic growth

Themed ‘Neela-Haritha Enterprise Sri Lanka’, the 2018 budget aims at driving accelerated economic growth through all key sectors of the economy to achieve a five percent economic growth and make Sri Lanka an upper middle income country by 2025.

However, Budget 2018 received mixed reactions with certain reservations on how the government would achieve its ambitious targets given the tight fiscal conditions and external scenario.

The Sunday Observer spoke to a cross section of business personalities and economists for their views on the budget.

Senior tax consultant and partner Gajma and Co. N.R. Gajendran said the 2018 Budget is one of the most simplified in decades and shows there is a continuation of policies.

There are no income tax proposals since the new law will come into effect from April 1, 2018.

There are certain minor variations in granting exemption in the Nation Building Tax.

However, certain improvements that were expected in taxation did not come through. Individuals and Partnerships (Partners of a Partnership) have been excluded in the First Schedule (Tax Rates) from the applicability of the reduced Tax Rate of 14 percent for a SME (Small and Medium Enterprise). You are aware that more than 70 percent of the economy of Sri Lanka is bed rocked on SME businesses, which are mostly carried on by Individuals or Partnerships. The 14% Tax Rate for the SME should be applicable for an Individual or for a Partner of a Partnership. As it is, only Companies are entitled for the reduced Tax Rate of 14% (Item No. 4(2)(a) of the First Schedule), if it is a SME. This unequal and unfair situation should be rectified.

Professionals have been excluded in the definition of SME found in Clause 195(Interpretation). This is not because of any policy decision or the intention of the Government. Professionals have been encouraged to return to Sri Lanka and to be based in Sri Lanka and as such, there is no just and equitable reason to exclude Professionals, if they carry on a business and are within the definition of SME so that they are also entitled to the reduced Tax Rate of 14%, like in the case of a Company. The specific exclusion of a professional in the SME definition, in Clause 195 should be avoided. It should be noted that if there is no rectification as suggested above, it will clearly give a wrong signal and message of unfair and unjust discrimination of Professionals. This will also not help to reverse the enhanced trend of brain drain. Also, for the sake of consistency, recognition given to Professionals for the past few years should not be needlessly negated.

Chevron Lanka PLC Managing Director/CEO Kishu Gomes said that from an overall point of view the 2018 Budget is a fair budget given the tight fiscal scenario the country is in.

Progressive decisions in terms of education and, agri-production have been taken. The move to maintain corporate taxes at 28 percent should be commended as it gives some hope of consistency.

With regard to the promotion of electric cars unless a proper energy policy and strategies are implemented, the country will run into an energy crisis. A crisis is on the horizon at the current demand levels.

There are no proposals to turnaround loss making state owned enterprises (SOEs) such as railway, Ceylon Transport Board, Ceylon Electricity Board, and the Ceylon Petroleum Corporation.

HVA Foods Chairman and Tea Exporters Association Immediate Past President Rohan Fernando said on the surface the budget has been balanced with the promise of incentives for start-ups and entrepreneurial endeavours by the private sector.

The biggest obstacle for economic progress is the overbearing and non-performing public service and the unbearable cost to maintain the centre and peripheral governing bodies. The recently passed Act to increase the representation in provinces from 4000 plus to 8000 plus is a case in point. This would increase the burden on the country to maintain the burgeoning regional governing bodies.

Liberalisation and creating hubs is a good move but the will to implement such policies is lacking due to the political ideology overpowering economic reality.

We have faith in the new Minister of Finance who is genuinely concerned in the well being of the country but could he alone achieve this task which is the trillion rupee question we need to ask when analyzing the budget proposals.

Ceylon Chamber of Commerce Chief Economist Shiran Fernando said the continued fiscal consolidation path that should help support monetary policy should be commended.The broad initiatives targeting development of entrepreneurs, SMEs and exporters will need careful implementation and focus.

The Women’s Chamber of Industry and Commerce commended the steps taken through the 2018 Budget to empower women entrepreneurs.

Chairperson of the chamber Chathuri Ranasinghe said that from the perspective of women’s empowerment, we welcome the budget. It is heartening to note, that, the budget incorporates many a proposal in respect of gender equality.

The move to support majority women owned enterprises, by granting a 10 percent interest relief for loans obtained by female entrepreneurs is highly commendable. This will encourage women entrepreneurs develop their enterprises.

The proposal to improve child care facilities will certainly enhance women participation in the workforce.

The Rs 10,000 million allocated to set up an EXIM bank to provide long term loans for small and medium scale businesses, the Rs 750 million allocated for the launch of Enterprise Sri Lanka loan scheme, the 15 percent interest relief for loans obtained by disabled entrepreneurs, the Rs 3 billion fund to be set up to fund IT sector SME’s and local startups, the export market support program to meet certain costs involved with exports and the SME guarantee fund to help exporters in CRIB to obtain loans will benefit small and medium entrepreneurs.

The ‘one stop shop’ to be set up by the Registrar of Companies will help create a hassle free registration process that would encourage the entrepreneurs to be privileged legal entities.

The reduction in the prices of essential items such as sprats, potatoes, dhal and onions will help particularly rural women to balance their domestic budgets.

“This is a women entrepreneur friendly budget. It is vital to ensure that the proposals are implemented and sustained so that they impart the benefits that are intended for the entrepreneurs, especially women entrepreneurs/professionals in business, who juggle the roles of being a wife, mother and home maker,” Ranasinghe said.

Professor of Economics, University of Colombo, Prof. Sirimal Abeyratne:

“In a nutshell, the budget has recognized current basic economic challenges which are to be dealt with in both the medium and long-term. In that respect, it is a good beginning, but its performance throughout the year depends on how effective and efficient the mechanism of delivery is.

On the one hand, it is a budget full of expectations in the right direction; acceleration of economic growth, export promotion, foreign direct investment, economic efficiency and effectiveness, and promoting blue-green economy. All that is good and requires fundamental reforms in ‘policies and institutions’ beyond the purview of an annual budget.

It is commendable that the budget also recognizes the principle of ‘polluter must pay’ as a remedy to environment pollution.

Finally, the budget has recognized the most pressing challenge that Sri Lanka is currently faced with in its fiscal management –the debt burden. The massive increase in debt service payment throughout the second half of this decade has been taken into consideration in revising the tax structure.

In fact, the tax structure has become complicated, but it seems unavoidable given the outstanding debt and its repayment over the next couple of years. Apart from public debt, the state-owned enterprises which are typically loss-making, are faced with accumulated debt and continus to drain public money.

The state expenditure for 2018 is Rs.3, 982 billion which has increased by around 46 percent to Rs. 1,259 billion compared to 2017 Budget.

However, the state revenue which is Rs. 2,175 billion will push the government to seek external and domestic borrowings to the tune of Rs. 1,807 billion to cover the budget deficit.

The expenditure breakdown is as follows:

Defence Ministry – Rs. 290.7 billion

Ministry of Finance and Mass Media – Rs. 227.57 billion

Ministry of Higher Education & Highways – Rs. 182.75 billion

Ministry of Education – Rs. 102.88 billion

Ministry of Health, Nutrition & Indigenous Medicine – Rs. 178.39 billion

President – Rs. 9.98 billion

Prime Minister – Rs. 1.77 billion

GDP grew by 3.8% in the first quarter of 2017 and 4.0% in the second to hold growth in the first half of 2017 to 3.9% year on year, unchanged from the 2016 outcome. Agriculture was hit in the first quarter by continuing drought, causing a 3.2% decline. Rice production fell by 53%, and there were significant declines in tea and rubber, major exports crops. Floods in the second quarter shrank agriculture by 2.9% with further rice loses, even as tea and rubber rebounded.