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| Sunday, 23 November 2003 |
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| News Business Features Editorial
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Reservations about target dates : Private sector commends budget, calls it meaningful and realistic by SUREKHA GALAGODA, HIRAN H. SENEWIRATNE & CHANUKA MANNAPPERUMA The Budget 2004 of the UNF Government was presented in Parliament last Thursday. The private sector and academics described it as good and a fair deal given the circumstances under which it was presented, but said Finance Minister K.N. Choksy could have been more precise by specifying target dates for completion of projects specially in infrastructure development.
B.R.L. Fernando, Chairman and Chief Executive Officer CIC described the budget as a fair deal given the circumstances. "The increase in fertiliser subsidy is an abberation as far as the sector is concerned. Rural farmers may think that urea is a panacea for all ills. They should learn to manage the soil and get maximum use of the land. The Agri Development Fund is a welcome move as we never focused on developing technology. This move will allow people to look for appropriate technology and funding to develop the agriculture sector," he said. Dr M. Sarvananthan, Research Fellow, International Centre for Ethnic Studies said overall, the budget is good as it does not impose burdens on the masses. The decision to increase the salaries of government servants and pensioners is a good move. He was of the view that moving to a single unified VAT rate of 15 per cent from the present 10 and 20 per cent will not result in an increase in the cost of living. Allocations for reconstruction have almost doubled through this budget which will improve the quality of life in the North and East. On the relief measures for the agriculture sector, he said it was difficult to say whether this will bring any benefits in the long term though it will in the short term. President, Sri Lanka Fruit and Vegetable Producers Processors and Exporters Association, Sarath De Silva described the budget as good and said highest priority has been given to agriculture. Around two million people produce fruits and vegetables, but face the problem of finding markets. They have to be induced to grow high value products for them to get a market and this can be done by exporters. Some exporters have already started model farms in rural areas such as Embilipitiya and Girandurukotte. Rangith Hettiarachchy, Chairman, Ceylon National Chamber of Industries said the budget is positive, but the private sector would have been happy if more precise target dates for projects were specified. "The VAT being brought down to a single band is a welcoming move, but we are a little disturbed over the ESC as it has a negative impact on industrialists and thereby a bearing on the cash flow," he said. "Industrialists requested a 20 per cent duty surcharge to be maintained for finished products so that it would act as a countervailing measure as well while we requested for a complete removal of the raw material duty surcharge. Bringing down the surcharge to 10 per cent on all imports is not a welcome move as it will result in dumping". He welcomed the increasing of the tax threshold, benefits for senior citizens, retirement benefits as well as infrastructure development projects, but expressed worries that no target dates are given. Hettiarachchy said that they hoped the VRS will not be extended to skilled employees which will result in a dearth of skilled labour in the country. Commerce and Consumer Affairs Minister Ravi Karunanayake hailed the budget saying it had focused on core issues such as cost of living, the economy and development. At a time when the world economy was at cross-roads, the Government's approach in dealing with these issues was laudable, he remarked. Karunanayake said he was happy that the proposals for next year are well balanced. He urged the business community not to be averse to taking "risks" while the Government was taking a proactive stance in the name of development. He called upon every one to help the Government achieve its objective in the new fiscal year. Minister of Industries Rohitha Bogollagama welcomed the budget saying that it consolidates the country's financial and fiscal management policies. "The proposals were a result of effective economic management of the Government, which paved the way for rapid industrial growth," the Minister said. He said the budget encourages high economic growth. The Minister also said: "This budget focuses not only on the welfare of the people, but also on long-term development planning". The SME sector will benefit from the reduction of interest rates. Bogollagama said the Ministry is looking forward to setting up two free trade zones, one at Biyagama close to the existing one, and the other at Pannala in the Wayamba Province, to increase employment. Referring to the proposed one per cent Economic Service Charge (ESC), he said that it will give an opportunity for all businesses to contribute to the nations's development. He said measures have been proposed for the wellbeing of the industrial sector such as power generation and deregulation measures on the lowering of tariff surcharge. The Minister said the budget has given a boost to the local dairy industry for the first time. Accordingly, any milk collector or company collecting 10 million litres of milk per year will receive a two rupee incentive for every litre. He also welcomed the benefits given to the public such as exemption of VAT on essential items and the pay hike for the public sector. The Ceylon Chamber of Commerce (CCC) commended the budget proposals for 2004 as a meaningful and realistic plan to take the economy forward. The projected budget deficit of 6.8 per cent, if achieved, will ensure that interest and inflation rates will continue to decline and the value of the rupee will remain stable against other major currencies. These were the corner stones of the economic development achieved during 2003 and will provide the macro-economic conditions for the country to achieve economic growth in a sustainable manner. The budgetary targets appear to be in line with those set out in the Fiscal Management (Responsibility) Act, which among other things, requires the budget deficit to be reduced to five per cent and public debt to 85 per cent of GDP by 2006. The short-term plan set out in the Regaining Sri Lanka document has prioritised the reduction of the budget deficit as the most important goal of the Government after the peace initiative. The CCC regards the Budget 2004 as being in close alignment with this document. The net domestic borrowing estimated at Rs 65 billion for 2004 compares favourably with Rs 87 billion estimated for 2003 (now revised downwards to Rs 80 billion) and Rs 1,260 billion for 2002. This will result in further market liquidity and the availability of more funds for private sector growth and development. The CCC predicts further downward pressure on interest rates, which the private sector would welcome. The budget proposals refer to infrastructure development in roads, power generation, rural telecommunications, water and sanitation. The CCC views the non-inclusion of the development of railways as a major omission. The CCC was pleased that its proposals on granting tax concessions to employees receiving terminal benefits and to pensioners have been incorporated in the budget. The National Chamber of Commerce of Sri Lanka (NCCSL) hailed the Budget 2004, saying that it has given more emphasis to infrastructure development and tax-oriented issues. The NCCSL appreciates the allocation of Rs 110 billion for capital expenditure to upgrade infrastructure that will help the country to register decent economic growth, NCCSL Deputy President, H.A Wehalle said. He said the introduction of the new funding line for Small and Medium Enterprises (SME) along with the infrastructure development programme will put the economy on the correct track. The proposal to make available Rs 11 billion for lending to the SME sector at an affordable interest rate is an excellent move, he added. Paying attention to rural infrastructure development with the idea of giving a fillip to the agricultural sector is laudable. He said increasing the fertilizer subsidy to 50 per cent from 35 per cent will have a positive impact on the agriculture sector. The Chamber also supports the flat rate of VAT as it will simplify administration and reduce leakage when it is being imposed, he added. Several steps aimed at reducing tax evasion and the broadening of the tax net will have medium-term benefits. This will enable the Government to reduce overall tax rate, he added. The Government had lost Rs 60 billion from the tax amnesty and Rs 120 million from unpaid VAT. Providing relief to public servants by granting them a minimum salary increase of Rs 1,250, and pensioners by increasing the Withholding Tax threshold to Rs 25,000 for a month from Rs 9,000 is a good move, Wehalle added. The Chamber pointed out a negative aspect in the budget as the drastic reduction of some of the depreciation allowance for capital expenditure. Wehalle said that Sri Lanka's future competitiveness will require significant investment to upgrade technology in the manufacturing and service sectors. He said the 25 per cent depreciation rate for IT investment and 12.5 per cent rate for machinery are inadequate to stimulate the required investment. The Business Chamber of Commerce also praised this year's budget as a commendable exercise in revenue generation and rationalisation of financial management. "We still feel that lowering of VAT further to 10 per cent and making it non-deductible or non-refundable will increase nett revenue and make record keeping and filing of returns simpler," it said in a news release. The decision of the Government to ensure that the entirety of companies registered should become active taxpayers is commendable, as the current narrow base of taxpayers of only 10 per cent of all registered companies is now broadened. At the same time, we envisage a substantial reduction in the number of registered companies due to closures of inactive, shell and paper companies. "We are glad that the Government has realised the importance of developing Sri Lanka as a regional shopping centre. The Women's Chamber of Industry and Commerce (WCIC) lauded the Budget 2004 for its inclusion of Women in Development. "It is said that Ministries are allocating 10 per cent of their budgets towards improving the status of women. The Budget 2003 also provided windows in Ministries for the same purpose," Indira Senanayake Kulatilake, Chairperson, WCIC said. Director Economic Research, Central Bank of Sri Lanka, Dr A.G. Karunasena described the objectives of the budget as continuing fiscal consolidation with a view to reducing the deficit, strengthening macro-economic stability and supporting the growth momentum and job creation and providing relief to the public. "This is a balanced and development-oriented budget with relief for public servants, pensioners and the farming community," he said. ############ Budget at a Glance * Economic Service Charge (ESC) For business entities with a turnover exceeding Rs 20 million or total assets exceeding Rs 10 million and in commercial operation for more than two years, an ESC of one per cent payable on turnover or total assets. * Deduction for Losses Businesses can only set off losses against the current year's total statutory income at a maximum of 35 per cent of such income. * Partnership Income An upfront tax of 10 per cent will be imposed on the divisible profits and other income of all partnerships. * Personal Income Tax The tax-free allowance for individuals will be increased to Rs 300,000 from the present Rs 240,000. * VAT Will move to a single unified rate of 15 per cent from January 2004. The turnover threshold of Rs 500,000 will be increased to Rs 750,000 per quarter and the annual threshold will be increased to three million rupees. * Levy on Mobile Subscribers An annual levy of Rs 300 per mobile phone subscriber instead of VAT on the purchase of mobile phones. VAT will be charged on the cost of calls. * Withholding Tax The present exemption limit of Rs 9000 per month or Rs 108,000 per year for Withholding Tax on interest income per deposit will apply to the total interest income from all deposits in any individual bank or financial institution made by a person or a corporate. The tax-free limit will be raised to Rs 25,000 per month or Rs 300,000 per year in aggregate from all deposits of individuals whose sole or main income is interest from deposits. * Customs Duty The duty bands will be reduced from six to five per cent. The 20 per cent surcharge will be reduced to 10 per cent. * Excise Duty Increased by Rs 5 per litre for beer with an alcohol strength of less than five per cent and by Rs 10 per litre on beer with an alcohol strength of above five per cent. Duty on rectified spirits increased from Rs 36 per litre to Rs 200 per litre. * Construction Machinery Imports The maximum age of used construction machinery that can be imported will be reduced from 10 to seven years. * Licence Fee on Kithul Palms Excise Tax reduced from Rs 250 to Rs 50 per tree. * Salaries of Public Officers From January, every public officer will get a 10 per cent salary increase or Rs 1250 whichever is higher. * Voluntary Retirement Scheme Will be introduced in January. A person taking up the VRS will receive an upfront payment equal to one year's remuneration, consisting of the retiring salary and the 2000 and 2001 allowances. * Pensions A 10 per cent increase in pensions from January. * Unemployment Benefit Insurance Scheme The Government will provide Rs 1000 million as initial funding for an Unemployment Benefit Insurance Scheme to be established during the year. * Housing Loans for Public Sector Employees A loan scheme for public servants will be facilitated by the Government through the National Savings Bank. The maximum amount available under the loan will be one million rupees while the interest rate will be 9.5 per cent per annum. The repayment period will be 20 years. * Increase in Fertilizer Subsidy Subsidy on a bag of urea will be increased from Rs 300 to Rs 450 * Agricultural Loan Relief for Farmers Reschedule loans and repay within six growing seasons. The interest rate is four per cent per annum. * Garment Sector Productivity Improvement The programme will be implemented through the Joint Apparel Association Forum and will include a grant to promote the industry as well as an interest-free loan for training and development of production staff. * Agri Business Development Fund * Development of Milk Industry To promote the industry, incentive payments of above two rupees per litre will be provided to companies processing milk. * Technology Improvement for Small and Medium Industry * Development of Rural Telecommunications The funds collected in the 'Vishwa Grama Fund' will be used to develop rural telecommunications. * Streamlining Departmental and Statutory Funds All funds within various government entities will be rationalised, merged and closed as appropriate. It is estimated that more than Rs 10 billion per year is collected. The funds will be brought under budgetary control and performance reporting while auditing systems will be introduced. |
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| Editorial | Security Produced by Lake House |
Some analysts said the 15 per cent tax on profits from the sale of
shares to be introduced from April 1, 2004 will slow new investors coming
to the market and thereby slow the expansion of the market.
