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Sunday, 8 February 2015

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'Some taxes may send confusing signals to investors'

The Ceylon Chamber of Commerce (CCC) called for a strategy centered on exports, investment and education to meet the economic aspirations of the people.

It believes that the proposals outlined in the interim Budget reflect the commitments in the election manifesto of President Maithripala Sirisena.

"Considering that the growth in average per capita household income has been low in the preceding years, we believe that the relief measures will ease people's economic hardships," the Chamber said in a media release.

"We also note that endeavours have been made to finance the new expenditure proposals through new revenue measures - albeit targeting a relatively small segment of the public - thereby containing the budget deficit to what was initially envisaged.

Overall, given the benign inflationary environment at present and the modest levels of household consumption, we believe there is space to accommodate the relief measures and since they have been financed with new revenue sources, macroeconomic stability is unlikely to be undermined.

Some of the taxes imposed are distortionary and entity-based and may send confusing signals to investors leading to a reallocation of resources. These are not desirable features of a competitive economy (which thrives on consistency) and a modern tax system (which ensures consistency).

The Chamber hopes that they are short-term transitionary measures aimed at maintaining a reasonable fiscal position.

In terms of revenue generation in the future, we call for a framework that is fair and non-discriminatory and an efficient tax administration.

The Chamber calls on the Government to formulate an economic policy framework to drive sustainable and inclusive growth.

"We believe that a strategy centered on exports, investment and education would be most appropriate at this juncture.

Such a policy framework, if aligned to market forces and institutionalised governance and supported by foreign policy, would ensure a competitive and productive economy and thereby, a reasonable minimum standard of living for all Sri Lankans."

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