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The maiden budget of the United National Front Government has outlined structured fiscal measures and incentives to revive investor confidence and increase growth to turn around the economy. The 2002 Budget promises to lay a foundation for establishing a growth oriented economy based on partnership with the private sector.

Finance Minister K.N. Choksy, delivering the budget speech, said the Government will embark upon measures to signify and unify monetary and regulatory procedures.

"We want to implement well considered and well structured fiscal measures and incentives immediately to revive investor confidence, increase growth and reduce recurrent expenditure in areas which do not yield corresponding dividends. We must rationalise the fiscal system and remove bureaucratic constraints so as to attract private investment into the formal economy. We will take immediate measures to activate the rural economy and by doing so reduce unemployment. The State should be the facilitator, and the private sector the developer of the economy. We have chosen this more arduous path because it is the honest and sure path to tread in rebuilding our economy for long-term benefits," said the Minister.

He added that Sri Lanka was in "a state of economic paralysis". Economic growth plummeted to negative rate of 1.3 percent in 2001 for the first time in the history of Sri Lanka. This budget will strive to reverse these trends. The government is formulating a three year strategic programme to revitalise the economy and reduce poverty, he said. The budget also saw the abolition of GST and NSL and deregulation of sectors such as petroleum.

Explaining the present economic situation resulting from an empty Treasury, he said the Government had no funds for public investment required to build a modern, competitive society with adequate social infrastructure.

CEB, CPC and CWE incurred unpardonable financial losses their outstanding debt to the banking system as at the end 2001 was Rs. 41 billion. The global recession and the events of September 11 in the USA wreaked havoc with our economy. Foreign investment and revenue from tourism were adversely affected by the North East conflict and the LTTE attack on the airport.

As a priority measure, no major expenditure will be permitted except after a full appraisal followed by Cabinet approval. An Office of a Controller General will be created in the Defence Ministry to regulate defence expenditure.

A tariff commission will be immediately established. A New Customs Secretariat with an electronic data information system will be constructed at a cost of Rs 600 million. The Customs Ordinance will be repealed and replaced.

Overlapping taxes will be eliminated while the tax base will be broadened. More incentives will be granted for industrial and Commercial Expansion. An Employment Act will be introduced.

State land which is not required by the state will be made available to the private sector at commercial prices.

Revitalising the Rural economy and strengthening the farming community have also been addressed. A thrust will be made to develop small and medium scale enterprises in rural areas.

The budget will aim to: turn the negative growth of last year to a growth figure of 3.5% -4% in the current year, reduce the budget deficit of 10.8% to 8.5% of GDP, reduce inflation from the existing 14.2% to at least 9%, exit the state from loss making public utility services, encourage private sector to invest through out the country though the five economic zones.

New Tourism Development Zones will be established in selected tourist areas where currency and other restrictions will not operate in respect of companies registered with the Tourist Board.

A new central bank law, Banking Law, Company Law, Law on Intellectual Property and Securities Law will be passed to strengthen the soundness of the banking system and to ensure that commercial transactions take place on a proper legal footing.

Restrictions on the sale, lease and transfer on rural lands will be removed. Public enterprises will adjust their prices upwards or downwards in accordance with current costs of production or services.

The Corporate Tax Surcharge of 20%, Advance Company taxation, Tax on Capital Gains, Government Stamp Duty,100% and Transfer Tax will also be abolished. A two-tier VAT (Value Added Tax) will be introduced. The lower band 10% -will apply to essential goods and services including power, petroleum, essential food stuffs, fertiliser, pharmaceuticals and medical equipment, industrial agricultural and fishing equipment. There will be a Standard rate 20% for other goods and services. VAT will be introduced on June 1.

The Surcharge on Import duties will be reduced from 40% to 20% effective April 15 while it will be done away next year.

Duties, Surcharges and other levies applicable to any imports with a value of less than Rs 10,000 sent through parcel post will be removed. The Stamp duty will be converted to a Port and Airport Development Levy. Electricity tariffs will be revised but concessionary rates will apply to consumers of less than 30 kwh per mensum. Tax concessions will be granted for large infrastructure projects in the production, transmission and distribution of power.

An annual levy of Rs 12 million will be imposed from April 1 for Gaming. For personal Income Tax, the marginal tax rate will be changed to 10%, 20%, 35% resulting in saving on income tax payable by wage earners and self employed individuals.

"Our Prime Minister held out the promise that he will bring an early end to the hostilities in the North and East. This he has succeeded in doing within the short period of 100 days of assuming office. The signing of the permanent cease-fire agreement between the Government of Sri Lanka and the LTTE has been the first and sure step on the road to national peace and economic revival. Its immediate result has been to re-win international confidence in our country and to re-inject aspiration and hope in the hearts and minds of all right thinking citizens," the Finance Minister said. 

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