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by SUREKHA GALAGODA & INDUNIL THENUWARA

Although the budget was prepared under difficult local and global economic conditions, the proposals oriented towards growth and development are positive, Executive Director of the Institute of Policy Studies Dr Saman Kelegama said last week.

Addressing a seminar organised by the Ceylon Chamber of Commerce (CCC), he said: "The ball is in the court of the private sector to deliver the goods." The private sector cannot ask for a better budget in this trying period, he noted.

Dr Kelegama in his analysis also raised some concerns among which were the introduction of the debit tax and the corporate tax. He said while the introduction of the debit tax is good to enhance revenue, it will be a disincentive to use banks. Therefore this might make people move away from the formal market to informal markets. "The only redeeming feature is that it is said to be only for a period of one year," said Dr Kelegama.

He said companies with less than five million rupees of taxable income will be charged 20 per cent while companies with over five million rupees will be charged 35 per cent. Therefore, business people might start splitting their companies and establishing smaller ones to get the benefit.

Addressing a seminar organised by the Ceylon National Chamber of Industries (CNCI), he said the new Value Added Tax (VAT) will bring in more revenue than the Goods and Services Tax (GST). "Although the GST replaced the Business Turnover Tax, it did not net in the expected revenue to the government as there was a substantial number of exempted goods. The VAT is expected to rectify the anomalies seen with the GST," he said.

Chairman, Fair Trading Commission Professor A.D.V. de S. Indrarathna, addressing the CCC seminar, said: "The budget has been prepared with the objective of rejuvenating the economy which is critically ill due to local and global conditions."

He said the budget acknowledges the private sector as the engine of growth and recognises the role of the government as a facilitator. He said that unnecessary expenditure must be eliminated and every effort made to collect all possible revenue.

Prof. Indrarathna was of the view that more funds should have been allocated for the garments sector. No measures are spelt out in the budget to curb post-harvest losses.

Partner, KPMG Ford Rhodes Thornton and Company Premila Perera said that tax reforms were the thrust of the budget in establishing a growth-oriented economy.

She said that instructions have not been given on whether the Advanced Company Tax (ACT) which has been abolished is to be refunded or carried forward. Individual shareholders stand to lose due to its abolition. Ms Perera also questioned whether the port and airport levy will replace the stamp duty. She said that budget expectations can be met only if the private sector is willing to cooperate with the government.

Secretary to the Ministry of Enterprise Development, Industrial Policy and Investment Promotion and Constitutional Affairs Ranjith Fernando said the budget is a departure from the popular view. Creating a proper macro- economic climate is necessary to achieve growth and attract investments to the country.

He said that the budget has made it clear that the government wants to deregulate and veer away from funding major infrastructure projects.

Expressing his views on development bonds, he said that it would have been better if the private sector could have raised the money on a long term basis such as 10-year bonds. He said the 60 per cent duty on food imports was welcome, but would have been much better if a tapering-off effect was attached, whereby the duty is used to improve agriculture.

Deregulation should be treated as a priority as 11 - 13 per cent is added to the cost of a product due to bureaucratic regulations, he told the seminar organised by the CNCI. "Although some sectors have been restructured, some such as the Banking Act, Exchange Control Act and Company Law, which were enacted when we had a controlled economy, have not been changed. They may have been tinkered with, but something of substance needs to be done," he said.

Chairman and Director General of the Board of Investment Arjuna Mahendran described the privatisation targets as "ambitious" and warned that if the government does not achieve the targets, the economy will be in jeopardy. The government and other relevant parties must move ahead with the implementation of reforms and privatisation targets.

Partner Ford Rhodes Thornton and Company Rajan Asirwathan told the CNCI-organised seminar that direct taxes such as income tax do not succeed here as people tend to evade payments. However, with indirect taxes such as the tax paid when buying a product, this evasion cannot be done. "The disadvantage here is that the tax has to be paid by those who cannot afford it as well as those who can. We should provide incentives to those who make correct tax declarations," he said.

Adviser to the Prime Minister R. Paskaralingam, addressing a seminar organised by the National Chamber of Commerce of Sri Lanka, said what the UNF Government does in the next few months will be more important than the budget. He said the budget was prepared under extremely difficult conditions due to negative parameters and the expenditure being out of control.

Mr Paskaralingam said that it would have been easy to pass on the debt incurred by the previous government to the people, "but we took on the more challenging path, which in turn will lead the country to development." He said that the privatisation programme will be fast-tracked. It will depend on a lot of other internal and external factors, he said.

Managing Director of Hatton National Bank Rienzie T. Wijetilleke said it is absurd to expect any short-term benefits. He said that planning, transparency and good governance are prerequisites for economic revival and hoped that further barriers will not be adopted.

He welcomed the decisions of setting time limits for the resolution of labour disputes and selling of government land for commercial purposes, but hoped that past experience will not repeat itself. He wished that this move will bring some activity to the property market which was stagnant during the last few years.

Chairman of Ayojana Fund Ltd. Ranel T. Wijesinghe said the UNF vision announced before the December elections is not adequately articulated in the budget of 2002. He also asked when the part or full-divestment of Bank of Ceylon will take place, why only refer to restructuring bonds for the North and East and not for the South and why there is a different treatment when buying bonds in Sri Lankan rupees.

He also requested clarity on several proposals in the budget such as how the government is going to raise the Rs 21 billion expenditure for social programme and spending Rs 600 million for a Customs Secretariat.

Chairman of Commercial Bank and Industrial Facilitation Forum Mahendra Amarasuriya described the budget as ad hoc as it is already three months late. Therefore, there will be more pressure on policy makers as well as all other stakeholders to achieve the goals within a short period of nine months, he said.

He described the allocation of Rs 10 million for the revitalisation of the economy as a pittance and also regretted the fact that there was no mention of the coal power plant as the power crisis will be more severe in 2004.

The CCC, in an earlier statement, hailed the budget as one in the right direction, particularly due to the difficult local and global environment. The Chamber feels that the government may have overly stretched the fiscal targets in the current economic environment. Therefore, achieving targets would require commitment with accountability, effective planning and participation of all shareholders.

The CCC said it believes that insufficient emphasis has been placed on the areas of reforms in tertiary education, reintroduction of English as a medium of instruction, information technology, public sector reforms, pension reforms and commitment to coal power plants to bridge the gap between demand and supply while maintaining electricity tariffs at competitive levels.

It also expressed concern about the significantly lower budgetary allocations made in much-needed capital investments as this may have detrimental effects on long-term growth.

The Chamber hopes that any benefits arising from the peace dividend including international aid commitments, revenue increases from growth and savings in recurrent expenditure will be directed towards capital development programmes.

The Chamber looks forward to the early implementation of the proposals to enact new laws to facilitate banking and commercial transactions, it said in the statement.

The CCC, while holding the government accountable for delivery of the policy framework and proposals of the budget has appealed to the private sector to mobilise financial and human resources and take entrepreneurial initiatives to use the new fiscal regime as a launching pad for private sector-led growth.

The Business Chamber of Commerce has also commended the budget. While welcoming the removal of the surcharge on import duty, which will have a favourable impact on the cost of imported goods which could ease the cost of living, the Chamber has expressed concern about this measure having adverse effects on local manufacturers, leading to a non-level playing field.

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