Budget 2015 needn’t be ‘shy’ to say ‘One eye on the election’, says CCC chief
View(s):Sri Lanka’s Budget is with one eye (focused) towards the elections and one shouldn’t be ‘shy’ to say it, Suresh Shah, Chairman Ceylon Chamber of Commerce says.
On a panel discussion at a budget seminar organised by the Institute of Chartered Accountants (CA) recently, he appreciated the government’s commitment towards maintaining targets in the Budget. “The fiscal stimulus in the Budget is manageable given the benign atmosphere in the country,” he said.
Good numbers
The country is expected to have a GDP growth of 7.8 per cent for 2014 following a 7.3 per cent GDP growth in 2013 supported by favorable performance in sectors of exports, tourism, construction and IT services. Keeping up with the target of transitioning to a middle income country, Sri Lanka achieved per capita income of US$ 3,280 in 2013 and is expected to achieve a per capita income of $3,719 for 2014, according to projected data.
The World Bank’s Global Economic Prospects report issued in June 2014 forecast Sri Lanka’s economic growth to remain broadly stable at 7.2 per cent in 2015 and 6.7 per cent in 2016. These projections position Sri Lanka as the fastest growing South Asian nation, ahead of the regional average of 5.3 per cent, 5.9 per cent and 6.7 per cent for 2014, 2015, and 2016 respectively, according to the panelists. Arjun Herath, Chairman CA Sri Lanka along with N.R. Gajendran, Partner Gajma and Co; Wasanthi Manchanayake, Commissioner General Inland Revenue and Duminda Hulangamuwa, Partner E & Y joined Ronnie Peiris, John Keells Holdings Group Finance Director and Mr. Shah on the panel discussion.
Standard VAT rate has been reduced from 12 per cent to 11 per cent but the tax base has been widened by reducing the chargeability threshold from Rs. 250 million per quarter to Rs. 100 million per quarter for wholesalers and retailers. It was observed that tax on external trade is expected to grow 23.5 per cent to Rs. 321 billion in 2015 compared to 14 per cent growth expected in 2014. Its contribution to total government revenue will increase to 19 per cent in 2015. Revenue from income tax is expected to grow by 24.8 billion to Rs. 322 billion.
Non taxable revenue is forecasted to grow by 16.8 per cent to Rs. 174 billion with a marginal reduction in its contribution to 10.3 per cent of total government revenue. It has been proposed to reduce the income tax payable by 10 percent on income tax payable by local manufacturers who commenced their manufacturing business in 1970′s and sustained competitiveness with imports as well as entering export markets on the profits and income from the sale of such manufactured products in the local market, but what’s not mentioned in this proposal is the criteria to be used to determine sustained competiveness from 1970s, according to the panellists.
More clarity on this proposal was sought by businesses, according to the panellists. The proposal to reduce the rate of income tax on the local sugar industry including the manufacture of sugar to 12 per cent and the Threshold increased to Rs. 750 million for small and medium industries was also discussed.
Mr. Shah proposed the Pension Schemes outlined in the Budget to be contributory. “They also need to be managed well.” He added that one needs to be a ‘careful’ in the 12 per cent deposit rate granted to senior citizens by banks. “This needs to be managed well (as there’s a risk in money being withdrawn from private banks).” He also added that it shouldn’t be ‘import substitution’, but ‘let’s ‘promote exports’. “There should be more focus on manufacturing ‘exports sector.”
Policy inconsistency
Mr. Pieris joined the discussion, saying he’s worried about what’s not said in the Budget. “The private sector seemed to be crowding out and confined. We’re not requesting for handouts, but ‘predictability’,” he said, urging the policymakers not to change goalposts. “The budget says something and then a major policy change shouldn’t happen. Rules of the game shouldn’t change.”
Highlighting the consolidation of the liquor sector, he said, “Will supermarkets have to change output VAT? Then what happens to the deemed VAT? Does it get excluded? With this proposal the hit to supermarkets can be high,” he said, adding that this sector shouldn’t be killed as it’s needed in a country with growing per capita income.
According to Mr. Herath private sector crowding out happens as the public sector gets into business. “There’s an opportunity for public private partnerships in this space,” he said.
Mr. Gajendran observed that the gap which is stifling FDI from following into the country needs to be identified. “There’s no country in the world which is growing more than 7 or 7.5 per cent. So Sri Lanka has to be the darling for investors,” he said, highlighting that the reason for low FDI has to be identified.
In the Budget proposals for 2013 and 2014 it was proposed to introduce legislation that would restrict the ownership of land by foreign companies and companies owned by foreign nationals and for the imposition of a tax on the leasing of land to them. Consequently, the Land (Restrictions on Alienation) Bill was passed by Parliament on the 20th of October 2014 and would become law once the Speaker certifies the Bill.
Mr Peiris said that the only thing that” we want is predictability and the necessary confidence be engendered in the system, so when a company invests in land, there are no unexpected change of rules”.
Mr. Shah said that there isn’t a proper definition of a ‘foreigner’. The restrictions are applicable on the alienation (transfer, lease or mortgage) of land in Sri Lanka a foreign individual, a foreign company or a company incorporated in Sri Lanka where any foreign shareholding in such company, either directly is 50 per cent or above. He said the Land Bill sends wrong signals to foreigners which will deter FDI flow.