NCE welcomes move to set up export-import bank

The National Chamber of Exporters (NCE) welcomed the move to set up an export-import bank proposed in the 2016 Budget. This was made known by the Chamber at a post-Budget forum last week in Colombo.

Secretary General and Chief Executive Officer of the Chamber, Shiham Marikar said the Chamber had submitted proposals on macro issues to the Ministry of Finance, along with sectoral issues of member companies. The Chamber also participated in the Task Force of the Ministry of Finance to analyze the proposals of private sector enterprises, and other organizations.

State Minister of Finance, Lakshman Yapa Abeywardena said the Government has created a conducive environment for interference-free business, with priority to accelerate exports and promote Foreign Direct Investments to access international markets through exports.

He said the government's pragmatic approach to critical economic and social issues particularly on human rights has enabled Sri Lanka to win the confidence of the international community and created the path for Sri Lankan export enterprises to exploit overseas business opportunities.

The Minister said the government was hopeful of regaining the GSP Plus facility to boost exports to the EU market, and also lift restrictions imposed by EU countries on the export of fishery products from Sri Lanka soon.

Positive and negative

The main presentation at the forum was by Principal, Tax and Regulatory of international audit firm, KPMG, Suresh Perera.

Perera, who is qualified in Accountancy and Law and a professional on Tax and Regulatory issues, made a detailed analysis of the proposals in the Budget on tax and fiscal issues which impacted on business entities positively and negatively, with a focus on export-oriented enterprises.

He said the proposal to boost foreign investments by relaxing restrictions imposed on land ownership by foreign investors especially through the removal of the Land Lease Tax was a forward-looking move.

Some issues which came into focus during the presentation were as follows:

The proposal to extend the triple tax deduction for Research and Development (R & D) activities to accommodate endowments given to National Universities.

However, it was pointed out that the new proposal permits triple deduction for R & D expenses, only if a technology advancement, and yield development are established, was not a conducive move, since it will discourage entrepreneurs and inventors engaging in R & D activities, because it is not possible to determine the outcome of such activities which are inherently risky in nature.

These restrictions should, therefore, be reviewed and removed, if the country is to progress rapidly with innovative and hi-tech products as envisaged in the Budget proposals.

The proposal to permit deduction of the cost of acquisition of any machinery used in the business of canning fruits and vegetables, in computing profits from such business, in addition to the depreciation allowance claimable on machinery, is a forward-looking move for the agriculture sector.

The following revisions related to taxation would impact negatively on the profitability of export-oriented enterprises:

Increase of the corporate tax rate from the current 12% to 15%.

The extension of the Economic Service Charge (ESC) to all enterprises including profit-making enterprises, covering people and entities which are liable to income tax in addition and the proposal to increase the current tax from 0.25% to 0.5%, and the removal of the present maximum ceiling of Rs. 120 million per year as tax.

Increase in the Value Added Tax from the current 11% to 12.5% for the services sector and the reduction of the current threshold for taxation to Rs. 12 million per annum from the current Rs. 15 million per annum.

Increase in the rate of the Nation Building Tax from 2% to 4% and reduction of the threshold for taxation to Rs. 3 million per quarter from the current Rs. 3.75 million.

The revision of the existing Port and Airport Levy (PAL) from 5% to 7.5%.

The proposal to increase the annual licence fee payable to the Registrar of Companies. It is also envisaged to make non-functioning companies to be liable to the annual registration fees. The voluntary liquidation of a company will be Rs. 250,000 on liquidation.

These moves will dampen company formation by entrepreneurs. It is the responsibility of the Registrar of Companies to follow the formal procedure to inform non-functional companies and thereafter, strike their names off the register. The recovery of the proposed penalty from already defunct companies is not practical since it will not be possible to trace the owners and directors of such companies.

The proposal to reduce import duties on machinery and equipment for the dairy industry, the removal of import duties on agricultural machinery and equipment, especially machinery used for dehydrated and canned fruit industry, including similar concessions and concessionary financing for targeted products, will boost business enterprises and exports in such sectors.

Panel discussion

There was also an interactive panel discussion at the forum.

The members of the panel were the Principal, Tax and Regulatory, KPMG, Suresh Perera, Managing Director, DSI Group and Council Member, NCE, Kulatunga Rajapakse, former Director General, EDB and former Director and Current Consultant, NCE, Geoffrey Tillekeratne, Director Policy and Strategic Planning, EDB, Ms. Dayani Wegapitiya and Director, Economic Research of Verite Research, Ms. Subashini Abeysinghe.

The discussion was moderated by Chairman, Shippers Council and Council Member, NCE, Sean Vandort.

Tillekeratne commended the move to set up an Exim Bank, by setting April 1, 2016 for its implementation. He added that such a specialist institution was necessary to provide innovative banking products to promote export enterprises as in the case of other successful countries such as South Korea and India which set up such institutions at a very early stage.

He said the need for such an institution was felt as early as the 1980s, and that he along with the late Dr. Wimal Wickremasinghe, the then SLECIC Chairman had studied the Korean and Indian models with visits to the institutions and had recommended the setting up of the Exim Bank.

However, the proposal was shelved due to other influences, and perhaps the inability to provide the capital. The NCE had made this budgetary proposal over the past three years, which has been finally accepted by the government is bound to benefit exporters, if properly implemented and managed with private sector participation.

Export Development Council

Ms. Dayani Wegapitiya endorsed the move to set up the Export Development Council of Ministers (EDCM ) under the Chairmanship of the President, since it would enable policy decisions on exports to be taken at the highest level for implementation by the relevant authorities.

Tillekeratne said that provision for the EDCM is already in the statute as per the EDB Act and added that this was a successful mechanism to develop exports which was functional in the late 1970s and early 1980s under the first two Executive Presidents of Sri Lanka, and endorsed the view of Ms. Wegapitiya that its revival will enable the EDB to enhance its strategic role of developing exports.

He said that it is important to incorporate the views of exporters in formulating policy documents presented to the EDCM and that the Chamber was desirous of playing an active role in this regard.

Thillekeratne said that there is statutory provision under the EDB Act to divert certain fiscal revenue to an Export Development Fund which could be used for the benefit of exporters as in the late 1970s and early 1980s which provided the momentum to develop exports under the open economy.

Since resources, which were diverted elsewhere, during the past two to three decades mainly due to the civil conflict, could now be used for productive purposes and even to fund the Exim Bank.

Kulatunga Rajapakse briefed the participants on the measures adopted by the Chamber.

Suresh Perera endorsed the Government's move to boost Foreign Direct Investments by removing restrictions under the Land Alienation and Ownership Act.