Confusing and disconnected budget
The budget is confusing, as it has contradictory policies. There’s a disconnect between the PM’s policy statement and the Finance Minister’s budget, according to some economists. “The PM in his statement early this month said that there will be 40 per cent in direct taxes and 60 per cent in indirect taxes, but the budget has projected a significant deviation of 85 per cent in direct taxes and 15 per cent in indirect taxes,” an economist said. He added that this year, the total tax revenue projected to be collected was at Rs. 249 billion while for next year, the projection is at Rs. 233 billion.
A CEO of a stockbroking company noted that the indirect taxation is ‘regressive’ in nature and that it affects the poor. “This is because the consumption of the rich doesn’t go up significantly.” He added that Sri Lanka has serious risks on its debt sustainability and this budget has the primary deficit rising by Rs. 200 billion from 1.6 per cent to 1.8 per cent. “With the interest rate going up and growth slowing, the debt sustainability is in the danger zone,” he said.
He said that intervention in the free market in terms of stopping banks from carrying out leasing is giving negative signals to the private sector.
He added that a positive in this budget is that special protection granted to some industries such as tiles and sanitaryware has been abolished.
The first full blown budget of the coalition Government was far kinder than the capital markets had expected, a Bartleet Religare Securities report said. It said that Sri Lanka has planned a budget deficit of 5.9 per cent of GDP (Rs. 740 billion) for 2016, in the same neighborhood of the 2015 deficit of 6 per cent.
“However, contrary to the Finance Minister’s guidance provided prior to the budget, more came from indirect taxes (Rs. 90 billion out of proposed 223 billion came from Nation Building Tax, a turnover tax of sorts) pushing up the indirect tax revenue proportion. Encouragingly, all prominent revenue proposals came from recurring sources as opposed to the interim budget’s regressive quick fixes. We believe this is a sustainable budget with realistic deficit targets although the revenue challenges in the macro sphere seem to remain.”Many hailed the elimination of duty free cars for politicians with businessman Nahil Wijesuriya noting that this was a good proposal.