The government is committed to implement all programs in the 2018 Budget despite the enormous state debt to be repayed this year, State Finance Minister Eran Wickremaratne said rejecting claims by the opposition to the contrary.
In an interview with the Sunday Observer after Finance Minister Mangala Samaraweera presented his maiden Budget in parliament on Thursday, he said “We will definitely meet our debt obligations, even though they are enormous.”
The State Minister said a special unit set up at the Ministry will monitor the progress of implementing the Budget proposals. Referring to the new taxes introduced under the Budget he said despite a crucial upcoming election, extrodinary measures have been made to raise government revenue to honor debt repayment and such measures will be limited to three years.
Yet, he said the government ensured that the cost of living is brought down by reducing the prices of essential goods and the Budget has a number of programs to enhance the income levels of the middle class and the less privileged.
Excerpts
Q. Finance Minister, at a Media interaction a day before the Budget was presented in Parliament said, ‘it is better to give a hungry man a fishing rod than a piece of fish’. He was quoting a Chinese saying which had been the cornerstone for Budget 2018. With a crucial election around the corner, don’t you think it was a risky bargain to take?
A. I think it is an incorrect interpretation of what he said. What he was trying to say was, the Budget is often defined as a set of relief measures. The budget is not about that. We have already announced relief measures prior to the Budget proposals. A new Inland Revenue Bill was presented by Minister Samaraweera shortly after assuming office. Under this new Act the tax free threshold was raised to Rs.1.2 million. So a person earning Rs.100,000 or less a month will not be liable for income tax. Prior to the Budget the levy on mobile phone usage was dropped and tariffs on single cabs and ‘Dimo Battas’ reduced to strengthen the small and medium industries. In addition to that, early this week we announced the reduction of duty on a number of essential food items, which would contribute to ease the cost of living. The Budget that was presented is more like the fishing rod with long term plans, it was not a piece of fish. It focused on strengthening the family and businesses. He announced several measures in keeping with that.
Q. Can you define the blue green budget, given that it refers to much more than the colours of the two parties sharing power?
A. The green means to say it was an environmentally friendly Budget. Sri Lanka being a country close to the Equator is facing severe consequences of global warming. In 2017 alone we had floods as well as droughts. The environment preservation has become a crucial factor for the country. To reduce carbon emissions we took certain steps. We have committed to convert all public transport into renewable energy by 2025. Likewise, by 2040 all vehicles will be converted to electric or hybrid. The taxes on energy efficient cars were also reduced to encourage buying. There are plans to develop infrastructure island-wide for charging stations for electric vehicles.There is a Carbon tax and Plastic tax to discourage their usage. But for those engaged in such industries we have announced concessionary loan schemes to help them make a smooth transition.The blue refers to the sustainable exploitation of the resources at sea. One of the first things will be to encourage research on the use of marine resources.
Q. Wouldn’t the Carbon tax be an additional burden on the people? Has this factor been looked into?
A. It’s always a question of weighing costs with benefits. The benefit would be a cleaner environment. I would say the tax is very minimal. We are introducing the principle, but we will fine tune the tax as we go forward.
Q. Meaning to say that the Carbon tax might be reviewed next year or so?
A. The amount is extremely small, it’s only to make the people sensitive to the fact how bad it is.
Q. Do you think the Rs.1 million reduction in customs duty is adequate to spur electric vehicle sales ?
A. We cannot say if it is adequate or not but this is a transition that people will have to make. This is an incentive in that direction.
Q. Critics are already saying that the Government does not have money for some of the schemes announced in the Budget due to the huge debt repayment hanging overhead this year. How do you respond?
A. We will definitely meet our debt obligations, even though they are enormous. We have carefully drafted the Budget. We are confident, we can implement the Budget, I think this question arises because, implementation of Budget proposals have been poor in the past. But we have also set up a unit in the Finance Ministry to monitor the implementation process.
Q. A key program under the 2018 Budget is the Enterprise Sri Lanka program, can you elaborate on this program?
A. This program is actually to encourage entrepreneurship. To encourage people to become entrepreneurs, it provides loan schemes, and in addition to that, encourages women to get into entrepreneurship. We have announced further and better concessions for women.Women account for 4% of the labour force but they are more than 50% in terms of university students in the country, so we want to encourage more women participation in the labour force. One way is to create a more favourable work environment for women, to balance their work and family, and the other is to encourage women to take up to entrepreneurship. Then this program will also emphasize the connecting of small businesses to the export chain.
Large companies account for more than 90% of our exports. We really want to ensure that we change this structure so that small and medium companies can add to Sri Lanka’s annual exports. Enterprise Sri Lanka program is about creating new entrepreneurs, connecting them to new markets and creating the environment for more investment.
Q. Is there any meaning in slapping a luxury tax and Rs.2.5 M tax on super luxury vehicles when most of these cars come on MPs’ and other permits anyway, or will the new taxes be applicable to such vehicles as well?
A. It is meaningful. What we have tried to do is to keep the duty structure fairly neutral, while giving concessions for small vehicles, so that a middle class family trying to buy a vehicle can get it at an affordable price. But we have placed the tax on the capacity of the engine. When this method is applied the prices of some luxury vehicles come down drastically because such vehicles have a lower engine capacity.
That would create a social distortion and therefore, we have added a tax on top of that. It is called a luxury tax on vehicles. I would personally prefer doing away with the car permits to MPs and public servants, but it has to be done in accordance with their different remunerations.
Q. It has been proposed to allow foreigners to enter certain businesses such as shipping, etc. How do you ensure that this will not impact the local business adversely?
A. The government is taking decisions in the interest of increasing Sri Lanka’s GDP. We are absolutely neutral in terms of industries and institutions. This decision is about liberalizing the Sri Lankan economy.
Even the previous government had clearly stated that they want to make Sri Lanka a shipping hub. That was the reason to set up the Mattala Airport and the Hambantota seaport. We have three ports in Colombo, Hambantota and Trincomalee as well as two international airports. Our expectation is to see these assets bring in expected returns.
For that it is important to invite more investments. Sri Lanka’s future lies in the services that we can provide and the related logistics. The thinking behind this proposal was to liberalise the ownership and let us not hold it back on what could happen. The idea is to make Sri Lanka the shipping hub of South Asia. We want to attract large freight forwarders and large shipping corporations so that the country can enter the bigger service chain.
Q. There was a proposal sometime back to set up an Exim Bank in Sri lanka, any plans to walk the talk in the approaching financial year?
A. Not an Exim Bank, but there is a proposal to set up a Development Bank. It will not be a conventional bank, it will not have branches, it is just an Apex bank. This will work with the existing banks. It is in the Budget proposals. I would not give a time frame for it.
Q. Will it be a reality in the coming year?
A. :That is what is envisaged.
Q. The telecom tower levy, will it not be passed on to consumers, eventually?
A. We must remember that it is not a levy on consumers. Basically, it is a levy on the towers. It is to minimize the proliferation of towers all over the country, there is an environmental aspect in it.
But in the long run there are efficiency aspects, that they could be connected and the towers could be shared. That is the intention in bringing this tax. I think technology is changing and in future we don’t need a proliferation of physical towers.
Q. What is the rationale behind 0.2% tax on banking transactions apparently to repay state debt?
A. Everyone is aware that the country is moving onto a period where we have to repay huge debts. It goes on till year 2022. Hence, we had to have some extraordinary measures in raising funds. We have limited this tax for three years. It is a revenue raising measure.
Q. Will it be reviewed next year?
A. No, we intend to keep it for three years.