Financial Times

Praise all-round but questions on implementation
The maiden budget of the UPFA, previously dreaded by the business sector and high net worth entrepreneurs, closed on a positive note with the private sector pleasantly surprised, masses upbeat and a bold attempt being made to rope the public sector into the tax net.

Analysts said the UPFA budget has a strong growth model and meets the direct needs of the people while protecting the country's long-term interests. It didn't rudely shock the private sector as widely anticipated.

They said sectors such as value added exports, capital markets, IT and software, apparel, construction, floriculture, minor crops, handicraft, dairy and fishery, plantations and agriculture, foundry industry, gem and jewellery saw key direct and indirect benefits, whereas subsidising diesel and fetching public servants into the tax net were described as audacious moves.

Anil Amarasuriya, CEO, Sampath Bank, said it is a progressive budget, adding that a lot of planning has been done. "It is mostly focussed on increasing tax revenue that has dropped from 22 percent of GDP in 2003 to 15 percent this year," he said, adding the government is trying to put it back on track.

Nihal Fonseka, CEO, DFCC said the budget has addressed wide-ranging aspects of the economy. "Given the difficult revenue situation the government is faced with the proposals are not detrimental to the private sector," he said, adding if properly implemented the proposals such as the SME support and incentivising the apparel sector will be very beneficial to the domestic entrepreneurs. He said the government has taken a bold step to broaden the tax net. "Including the public sector in a limited way into the tax net is a very good move," he said.

Mineka Wickremasinghe, Chairman of Ceylon Biscuits Ltd, joined the chorus of private sector leaders praising the budget. "This is an excellent budget despite the adverse financial situation the country is in.

It is encouraging that the government has realized the importance of agriculture and processing agriculture to boost the economy. However, the accentuation should've been to support the farmers at grass root level also. I'm also happy that anti-dumping laws are to materialise."

He said he expected legislation to prevent under-invoicing of imported goods. "The introduction of MRP (Maximum Retail Price) could overcome this and make it operative. Customs should prosecute importers violating labelling laws and the retail price should be disclosed at the time of entry," he said.

Media-shy, Rajan Brito, Managing Director of Aitken Spence, also spoke of a positive budget being presented by the government. "It looks progressive and ambitious. It is good for development and the private sector has not been badly affected. The budget is not only pro-poor it is also pro-business"

Husein Esufally, CEO Hemas Holdings, found the budget a reasonably good one."The private sector expected much worse but the government has realized the basic principle and has not taxed the private sector excessively. I understand that the government went through a difficult time trying to match the expenses, but it could've been much worse. All in all I see this to be a reasonable budget."

Dr. Hans Wijesuriya, CEO Dialog, said the demographic realities have been taken well into consideration in taking development outside the polarized areas. "This budget can be thought of as extremely positive considering the expectations. This has been aimed at growth and development in the long run. This I hope would further enable our goal of taking mobile communications to customers of the lower income segments with no additional taxes being introduced."

Deva Rodrigo, Chairman of the Ceylon Chamber of Commerce, said reducing VAT on dhal, sugar and other essential items from 15 percent to 5 percent and income tax not being increased was commendable.

He welcomed the increase of wages for the public sector but said that the government should have the minimum number of employees, as there are currently an excessive number especially in the lower level. "This proposal is welcome. But I don't agree that we need all these public servants. There are so many who are just idling," he said.

Rodrigo expressed reservations on taxing companies not distributing dividends and foreign travel. While this proposal may have been introduced in order to tax those who claim personal travel as official, it would affect those who do travel abroad for official purposes.

Cubby Wijetunge, former Chairman, Industrial Association of Sri Lanka, said the budget seems to have a sound foundation for increasing the revenue of the GDP to about 19 percent over the next two years through the newly introduced tax modality.

"A great boon is that the government has realised that Sri Lanka is virtually a SME sector and requisite action has been taken by setting up special units for thus sector."

He said an area that needs priority is harnessing competitive power and energy to ensure Sri Lanka has a competitive manufacturing base and provides relief to consumers.

VAT exemptions, subsidies source of worry
International lending agencies, not strenuously consulted on the budget unlike in previous years, were concerned about the taxes and more importantly the VAT rates.

"There are a number of interesting new cess items and a plethora of taxes," Jeremy Carter, Resident Representative, IMF said, adding that he was intrigued by the change in VAT rates. He said VAT rates are very complicated and a simplified rate would have been better in terms of monitoring administratively.

Alessandro Pio, Country Director, ADB, said shifting from a single VAT rate to a multiple rate would complicate the VAT administration system. "The many VAT exemptions will also complicate the management of the VAT system," he said adding there are quite a lot of subsidies to promote Small and Medium Enterprises (SMEs), housing programmes and lending programmes which are a cause for concern.

"These subsidies have a potential to distort the resource allocation," he said. Pio said the government announced policies to pay more attention to poverty reduction, rural areas and the social sector.

"There does not seem to be an excessive burden on the private sector on generating revenue and the intention to widen the revenue base is a positive thing," he added.

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