The economy was badly hit by the sharp rise in oil prices in September.

Economy on recovery path: Treasury Chief

By Sunil Karunanayake

Treasury Secretary P.B. Jayasundera said yesterday that despite many difficult challenges, the economy had recorded an 8% growth for the first quarter followed by an equally impressive 7.3 % growth for the second quarter while the much needed revenue targets had been met.

Speaking at a post-budget seminar organized by the Institute of Chartered Accountants Sri Lanka, Dr Jayasundera said the country was just recovering from the adverse effects of the economy. Analysing the difficulties the economy faced, the Treasury Chief in his keynote address said: “Global oil prices had reached an unprecedented US$ 70 per barrel in September pushing the annual oil import bill to a staggering US$ 2.2 billion. The garment industry was in the midst of a transformation and had just come in to a liberalized regime from quotas. Violence erupted in the north and the east and almost ended up in Army headquarters in Colombo.

Law and order situation was deteriorating and allegations on corruption was mounting.” He said Budget 2007 was a process to place the country on a 10-year progressive path to raise per capita income to US$ 3,000 from the present US$ 1,300 through a comprehensive regional development based on a series of consultations and representations with key stakeholders of the economy.
“Today inflation is on the increase due to a multitude of reasons the main contributory factors being the oil price hike, removal of subsidies on fuel and the avenues made to provide a fair price to the local farmers as against giving a benefit to foreign wheat farmers. He also said the private sector credit expansion has been rapid at 22% and the Central Bank through its aggressive open market policies was applying control measures.”

On taxation issues, Dr. Jayasundera said that at a recent World Bank conference it was noted that of the 114 countries participating over 50% complained about the difficulties experienced in administering Value Added Tax systems. Dr Jayasundera said that in response to a query raised by the President he had to admit that the prevalent VAT system was a mixture of collection, refund and also outflow from the Treasury. Rajan Asirwathan, Senior partner KPMG Ford Rhodes and Chairman Tax Faculty of the ICASL, said the budget didn’t heap burdens on the private sector as anticipated and welcomed the steps taken to grant relief to Unit Industry, taxation on terminal benefits/employee share ownership schemes and withholding tax on interest. Mr. Asiriwathan expressed concern on the introduction of the proposal to impose additional tax on companies that distribute dividends of less than 25%.