Sharp focus on promoting SMEs

The Government has placed special emphasis on promoting the SMEs which form the backbone of the economy. In line with the government's policy, a number of measures has been taken to promote export oriented SMEs. However, the full export potential of the SME sector has not been realised yet and at present their contribution to the total exports of Sri Lanka remains at less than 5% in spite of the fact that nearly 80% of exporters are in the SME category (export turnover less than Rs. 60 Mln). The efforts of successive governments by way of policy and institutional reforms to develop the export oriented SME sector were not sufficient to create the desired impact to build capacity, capability and competitiveness of the sector.

Companies individually cannot do so in an environment which is becoming extremely competitive. Hence, there is a need for State intervention at this juncture to assist the SMEs to counter the unfavourable global and domestic business environment. The following proposals submitted by the Sri Lanka Chamber of Small Industries [SLCSI] are vital at this juncture to realise the full export potential of the SME sector and includes the introduction of an Investment Support Scheme for Export-oriented SMEs, export Promotion Incubators as well as tax and other concessions for the SME sector:

At present a package of incentives including income tax, duty and VAT concessions to the export sector are in existence. However, no preferential treatment has been given to the SME sector which faces constraints such as lack of concessionary financing low level of technology/skills and inadequate institutional/physical infrastructure. Therefore, the following concessions have been proposed to develop the SME sector.

Lower Corporate Tax - By reducing the corporate tax from 15% to 7.5% for exporters, the Government can encourage exporters to increase exports.

Duty Free Vehicles to be used in the production process - By offering duty free vehicles without engine capacity limitations, the government can prompt Sri Lankan entrepreneurs to get activated and get into export activities.

The value of the vehicles should be limited to 5% of the total net export earnings per year. These vehicles should be registered under the name of the company and strictly cannot be transferred, sold, rented, gifted or leased during the first five years. Tax Free Dividends - Dividends can be exempted from tax to encourage exporters to add more value to their exports to increase their net profits. Lower Bank Interest - To expand local enterprises engaged in exports, the Government can introduce special interest rates, which are almost fixed and low as the present interest rates applicable to housing loans. VIP Treatment at Airports - Since exporters are always on the global move providing preferential VIP facilities at airports will give them due recognition for their valuable contribution and attract non-exporters to become exporters. Subsidised Energy Cost - To compete in the global markets, the high energy cost is one of the significant barriers for exporters. If the Government can provide electricity at a special rate this can be overcome easily. Removal of UDA Levy - Remove the UDA levy of 4% on new buildings for export oriented enterprises. Abolition of this levy will help local industries and other builders as well. The Global Competitiveness Report - 2006-2007 ranked Sri Lanka at the 79th position in overall competitiveness out of 125 countries. Many domestic factors such as high cost of production, high transaction cost and low productivity contributed to the decay of competitiveness of Sri Lanka.