IRD called upon to be efficient, client-friendly:

Budget aims at productive economy - Dr. P.B. Jayasundera

By Sureka GALAGODA

The Budget is aiming at a very efficient productive economy, said Treasury Secretary Dr. P.B. Jayasundera addressing the Budget seminar organised by the Department of Inland Revenue (IRD) on the eve of the Budget.

He said that our nation is lagging behind 25 years compared to other economies in the region. Therefore, we have to do 35 years of work in 10 years. The work which should have been done 35 years ago must be done now.

The Government is concentrating on IT, productivity, efficiency and innovative technologies to achieve a higher growth. Today the world is talking of a 10 percent growth. Until recently the world considered a 3-4 percent growth as good, but not any more. China is growing at 10.2 percent while India is also encountering tremendous growth.

The Budget for 2011 is very comprehensive and covers all sectors of society from the unborn child to the elder and from banking to IT and SME.

The Government’s aim is to move from manufacturing to value addition. It is not discussing subsistence but food security in addition to comprehensive and transparent fiscal policies. Tax administration is very simple since corporate taxes as well as income taxes are very low after many years.

Dr. Jayasundera said that the Budget gave up many things it was saddled with. The debit tax which was generating about Rs. 10-15 bln of revenue for the government was dropped. Several taxes were given up while concentrating on generating more revenue through a small number of taxes. After April 1, 20,000 tax files will be eliminated.

Since the IRD will have less work the department should concentrate on doing serious professional work. In addition the Budget has proposed to establish an independent tax commission for settling of tax disputes within 90 days. This will save time spent on disputes.

Dr. Jayasundera told tax officials, “Let them pay what they can, believe them, trust them and win them over without treating them as rogues.”

The IRD should concentrate on domestic taxes, as well as have a comprehensive tax system by April next year. The Customs Department has already begun shifting towards technology and will be on that mode by January. The IRD will also have to move in that direction as very little collections will happen.

Dr. Jayasundera said that the thresholds are lucrative for the next 10 years. If inflation takes the trend of the last year then we can achieve a growth of 8 percent while inflation can be curtailed at 6 percent.

The poverty level is 7.6 percent. It was 15 percent in 2006. It will be further reduced to 5 percent. Personal income tax has been simplified while the debit tax is eliminated. Banks can’t grumble as taxes have been reduced from 70 to 40 percent. Banks will have to concentrate on long term lending to customers at affordable rates.

He said that banks will have to play the role of investment bankers and provide 7-10 year loans for agriculture, industry and services. In the next three months banks have a responsibility to become investment/development bankers. Bankers will have to bear with the customers until the harvest is reaped. The conflict is over, infrastructure is available and the openings are quite good. New sectors are opening for investments.

The Budget deficit is 6.8 percent of GDP or Rs. 434 bln which is a tolerable figure. This money is earmarked for capital formulation in the sectors of ports, power, irrigation, roads as well as for education and skills development. Don’t worry about the Budget deficit as all the projects will generate income, said Dr. Jayasundera.

The world is quite buoyant while the Asian region is witnessing a growth of over 10 percent. The Deputy Prime Minister of China speaks of Sri Lanka as an emerging economy. All indicators point at a prosperous economy. The Budget and the President swearing-in are over. So, Let’s get back to work.

There is a need to develop seeds and planting material. There is a five year tax holiday for agriculture and seed development.

SMEs will be linked to big players, have been recognised as engines of growth and have been exempted from ESC.

The Government has mobilised a $ 50 mln funding facility with a 40-year repayment period.

The Budget also has spelled out incentives for the private, public sector to work together in the area of research. Originally the tax was 35 percent for corporates while it was 15 percent concessional for exports. Now the 35 percent has become 40 percent for sectors such as liquor, cigarettes while the 15 percent has been reduced to 12 percent.

The corporate tax is 10 percent if the value addition is 60 percent or more. In this scenario exporters don’t have to worry about GSP as quality products will attract customers. If the product is of quality the market will come to you instead of you going to find the market.

A five star hotel room should fetch a price of $ 125. If a hotelier can’t sell a room at that price he can sell it at any amount but pay a tax of $ 80 in addition to VAT. If the room gets the stipulated price there is no additional tax but only the VAT.

Dr. Jayasundera said that no investment will be promoted on the basis of cheap labour. It will be a skilled workforce that will be available. Also political stability and infrastructure. The country will be able to attract quality investment.

As the country is moving towards a skilled economy the tax system too would be forward looking while simplicity is the theme.

He said that 20 commodities such as wrist watches, cameras will only be liable to PAL and NBL which sums up to 8 percent.

Telecommunication has been identified as a key sector and to make it more efficient it has been made VAT free. Now only a single tax is applicable. Earlier it was 30 percent now it has been reduced to 20 percent. At present the government is trying to identify machinery, which is needed by the sector and will be made tax free.

Another change is that administration of taxes has been streamlined with some taxes being taken by the central government and the share of the provincial governments given to them or the two organisations taking separate taxes .

Development is central in the Budget and it is multifaceted- be it small or informal all sectors have been considered.

Machinery over four years is considered depreciated while for buildings it is 10 years. The BOI has 12 zones and all of them have space which is underutilised. Steps will be taken to utilise the space while approvals on paper were cancelled from midnight November 22.

In addition the owners of unutilised land have been requested to grow or give the land to the government.

The IRD was requested to be efficient and client friendly. The Budget clearly addressed all sectors and in some instances has even spelt out the HS codes as the government wants to develop the country to be a middle income country by 2015.

Dr. Jayasundera called upon all citizens to help Sri Lanka become a middle income country so that every citizen can be proud to live here.