Consistency in tax policy from 2011:

Private sector must implement Govt. initiatives

By Gamini Warushamana

The private sector has a responsibility to improve the Doing Business Indicators of the country and the private sector has failed to implement important initiatives launched by the Government, Central Bank Governor Ajith Nivard Cabraal told a post- Budget seminar organised by KPMG in Colombo on Friday.

Cabraal said that the online payment system of EPF contributions is not utilised by the private sector.

“We should improve our way of doing business. Business chambers have long lists of what the Government should do. Now we too have a list of what the private sector should adhere to. We have improved our Doing Business indicators and other countries too have improved theirs. However, we have to do much and we can follow Malaysia, which is at number six in the Doing Business ranking,” he said.

Today, there are so many topics on various aspects in post-Budget discussions of the economy such as economic growth, fiscal deficit and consistency of policies. However, this was not so in the past and the concerns of the people in the Budget was on taxes and incentives or concessions.

“If we look at Budget 2014, the broad objectives are maintaining economic growth at the level we set, macro economic stability by maintaining low inflation, continuous reduction in fiscal deficit and maintaining consistency in tax policies,” Cabraal said.

“In the past we had a 12.5 percent inflation. We have brought it down to a single digit and hope to reduce it to four percent or less in the coming years. Fiscal deficit has been brought down to 5.2 percent.

Earlier it was 9-10 percent but nobody was worried about it. So these are the fundamentals that today's Budget is structured on and it is in line with the Mahinda Chintana policy framework,” he said. Cabraal said that in addition to strengthening traditional economic sectors, the Budget has introduced provisions to implement the five-hub concept.

These five hubs plus the tourism sector will be the key drivers of the economy.

The Budget has addressed the issues in the apparel, tea, rubber and other traditional sectors, to help them face future challenges.

“To move from a $400 per capita income country to the next level the economy must be diversified,” Cabraal said.

In line with this concept, concessions or incentives have been given for shipping and aviation industries. Tax concessions, setting up an ocean university and maritime industry skills development and buying new ships have been considered.

“We have developed ports and there is a 'next phase' in the each of the ports to be developed.

Therefore, we need other services and skills to make the country a shipping hub,” he said.

With its geographical location, Sri Lanka has the potential of being an aviation hub and in line with aviation infrastructure development the 2014 Budget has given incentives for the development of the aviation sector by providing VAT and NBT exemption in backward integration.

Incentives are given for professionals aimed at brain gain. Tax holidays given to the BPO industry aims at achieving a $ 1 billion export target and channel new investments into the industry.

The Sri Lankan economy will reach $ 100 billion and accordingly the banking sector will double.

This Budget has provided incentives to address the mismatch and create a strong and healthy financial sector. A strong financial sector is also needed for the growth of the real sector.

The development of the debt market and stock exchange are also in focus. The target is a $ 60 billion stock market or 60% of the economy.The Government has considered debt sustainability and the debt to GDP ratio is continuously on the decline.

“All companies rely on debt but you must ensure that the debt is within your reach. The Government too relies on debt and Debt to GDP ratio is declining from 105 percent. It was 92 percent in 2005 and today it is 78 percent. With lower fiscal deficit it will further decline,” Cabraal said.

KPMG sources said that there is little change in the tax policy and broadly there has been a consistency in the tax policy from 2011. This is what business chambers and the private sector have urged.After the 2011 tax commission report there have been important changes such as tax simplification and reduction of corporate tax.