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.
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