Govt spells out proposals to revive economy | Sunday Observer

Govt spells out proposals to revive economy

A guaranteed price scheme will be introduced for paddy, onion and potatoes   PIC: LAKE HOUSE MEDIA LIBRARY
A guaranteed price scheme will be introduced for paddy, onion and potatoes PIC: LAKE HOUSE MEDIA LIBRARY

The Finance Ministry has unveiled a series of concessions to revive the economy and bring down the cost of living.

The directives set out by newly appointed Prime Minister and Finance Minister, Mahinda Rajapaksa are aimed at easing the burden on the public and supporting entrepreneurs, a statement issued by the Finance Ministry said.

The policy statement in full:

President and Prime Minister and Minister of Finance and Economic Affairs have raised concerns regarding the serious setback in the economy as reflected in the persistently low growth rates during the past three years along with the rising cost of living.

The Prime Minister is of the view that ill-conceived economic and financial policies of the previous Government have led to this situation by marginalising local entrepreneurs, industries and domestic production.

As the 2018/2019 Maha cultivation season has begun with extremely favourable weather throughout the country, the economy is set to revive as all hydro power reservoirs and irrigated schemes have reached full storage capacity to generate electricity, provision of drinking water and water for cultivation.

The Government thinks that this is the best opportunity to prepare the country to get the maximum benefit from agricultural production. At the same time the consumers are saddled with high cost of living. In this background the Prime Minister and Minister of Finance and Economic Affairs has given direction to implement following initiatives to revive the economy.

To ease the pressure on high cost of living while also protecting the local farmer, Special Commodity Levy will be reduced on dhal by Rs.5 per Kg, chickpeas by Rs. 5 per kg, black gram by Rs. 25 per kg. Customs Duty on wheat grain will be waived to Rs. 9 per kg from the existing waiver of Rs. 6 per kg.

Sugar will be brought under the Special Commodity Levy whereby the applicable taxes on sugar will also be reduced by Rs.10 per kg. The commodity prices will be reduced with immediate effect. Given the impact of fuel pricing on all strata of the society specially those engaged in transport, agriculture and the fisheries sectors, the price of Petrol (Octane 92) will be reduced by Rs. 10 per litre, auto diesel by Rs. 7 per litre and lubricants including the 2T lubricants used in three-wheelers and small agricultural engines by Rs.10 per litre.

At the same time a cost based pricing mechanism will be implemented on fuel in place of the monthly fuel price formula.

A guaranteed price scheme will be introduced for paddy, onion and potatoes produced by our farmers. Accordingly, SCL will be raised during harvesting period to protect farmers through remunerative guaranteed prices.

As potatoes and B-onions are being harvested, SCL on potatoes and B-onions will be maintained at Rs.40 per kg.To mitigate the impact of adverse weather which resulted in farmers losing their livelihood and becoming heavily indebted, interest and the penal interest incurred by farmers and small paddy mill owners on loans up to a maximum of Rs. 50 million, from all commercial banks during the past three years, will be written off in full and will be borne by the Government.

The maximum threshold on Loan advances given by Samurdhi Banks to Samurdhi beneficiaries to support their livelihood activities will be increased by Rs.10,000.Fertiliser prices for paddy will be maintained at Rs.500/50kg bag and fertilizer prices for other crops will be reduced to Rs. 1,000/50kg bag from Rs. 1,500 per 50 kg bag.

The concessionary income tax rate of 14% on agriculture is presently applied only for the companies engaged in agricultural businesses. The income of individuals from Agricultural undertakings will also be reduced from the existing maximum rate of 24% to 14% so that individual farming agriculture is also encouraged.The concessionary Income Tax rate of 14% is presently applicable under the SME categories only for Companies. This rate will be extended to include individuals including those providing professional services. Therefore,the income tax rate for professional services will be reduced from 24 percent to 14 percent.

Withholding tax will be exempted on Interest on any savings and fixed deposits maintained in any financial institution.

To encourage local entrepreneurs, professionals and migrant workers to remit their earnings in foreign currencyon services provided outside Sri Lanka, Income tax will be exempted on such remittances.

The adverse impact created by high indirect taxes will be mitigated by simplification of VAT and NBT. The VAT threshold will be increased from Rs.12 million per annum to Rs.24 million per annum.

The threshold for the VAT liability of wholesale and retail sector also will be increased from Rs. 50 million to Rs.100 million per twelve months providing benefits to small traders and businesses.The VAT rate applicable on the import of Sawn Timber will be reduced to 5% to support the local Construction Industry.

VAT on import of fabric will be exempt providing benefits to the small and medium garment manufacturers. Considering the high tax imposed on the Telecommunication services, the Telecommunication Levy of 25% will be reduced to 15%.

The thrust of these initiatives are to encourage production and simplify the tax system. It will certainly help households with additional income in their hands. The proposed changes to the tax system will also encourage inward remittances and savings.

The Government also expects to reduce its expenditure with the rationalization of Cabinet ministries as reflected in a lessor number of ministries and reexamination of capital expenditure programs.

The government is confident that the primary surplus of 1.8 percent of GDP and the budget deficit of around 4.9 percent of GDP that have been targeted for 2018 could be achieved in support for further fiscal consolidation to provide economic stability.

The measures to further consolidation of external trade and payment transactions are also being examined to provide much needed stability to the exchange rate.

The President and the Prime Minister and Minister of Finance and Economic Affairs have directed the implantation of the above policy measures.

The Gazettes for the tax related proposals were issued last week and Cabinet approval will be sought to amend the tax laws.