Sri Lanka’s Finance Commission (FC) has called for changes to the provincial fund distribution methodology to achieve balanced regional development in the country, outlining that the prevailing government accounting system is not geared to effectively assess the total annual fund allocation to a particular province.
The five-member Commission which submitted its recommendations for 2018, in a report presented to President Maithripala Sirisena, advocates the National Ministries to consider proportions recommended by the FC.
“To achieve Balanced Regional Development in the country, fund distribution among the provinces based on a rational methodology will not be effective if a meagre proportion of the National Budget is only spent through Provincial Councils.
Duplication of funds
“It is recommended that funds disbursed for the development sectors coming under the devolved subjects should be channeled through the provincial councils. It is further recommended that in the event of implementation of projects identified under devolved subjects by the Line Ministries should also be carried out through the Provincial Councils,” the report by the Commission stated. It highlighted that this would minimise duplication of funds and overlapping of activities, thereby promoting effective use of funds and maintaining transparency and accountability of investments.
The Finance Commission chaired by Uditha Harilal Palihakkara comprises of Central Bank Governor, Dr. Indrajit Coomaraswamy and Treasury Secretary, Dr. R. H. S. Samaratunga, as ex-officio members. The other two members of the Commission appointed by President Sirisena are Velupillai Kanagasabapathi and Prof. M. M. Zafrullah.
Touching on the policy making process for balanced regional development, the Commission recommends the setting up of a common framework for national and sub-national planning system without undermining the concept of devolution.
Coordination
The report states that this can be supported by a national level management information system (MIS) coordinated by the Department of Project Monitoring and Management which caters for national and sub-national level information requirements for planning and monitoring.
“Absence of a common framework in the national planning system is also identified as a main issue that affects effective decision making process,” the report by the Commission stated highlighting that lack of data and information related to public fund allocation and investment among regions are observed, due to poor inter-governmental fiscal relations and lack of coordination.
On the other hand, the Commission has recommended that Provincial Councils should be allowed to collect taxes from business entities with a quarterly income of up to Rs. 3 million.
At present, while business entities with a quarterly income of over Rs.3 mn. are subject to Nation Building Tax (NBT), which is collected at the National Level, businesses earning a quarterly income of less than Rs.3 mn are however exempt from NBT.
Provincial revenue
“Further, it is recommended to enhance provincial revenue through untapped revenue sources such as private schools / tutories/ local and foreign collage of higher education, health service providers, and professional service providers,” the Commission states.
The Commission has recommended the introduction of an attractive provincial incentive package for private investors who are willing to invest in rural lagging/backward regions.
The proposed preferential incentive package should be characterized by interest subsidies, tax holidays, reduced tax rates, concessionary loan schemes and easy collaterals.
This will also be helpful to focus public investments on social infrastructure projects which are needed for uplifting the day today life of ordinary people.
“It is recommended to link Infrastructure facilities with anchor projects with the provincial growth centers based on industrial activities. Considering the urgent need of linking the provincial growth centers with national level mega projects, special budgetary allocations are suggested to be provided for improving infrastructure by way of facilitating private investments at regional level,” the report points out.
Other recommendations of the committee include the need to give high priority to the enhancement of human resources in the Provincial Councils and that provincial budgets should include provisions for rehabilitation of devolved nature infrastructure affected by natural disasters.
The full report is available in the Finance Commission website (fincom.gov.lk).
