Increased interest rates will hit micro entrepreneurs

by Lalin Fernandopulle

Micro and medium entrepreneurs will be adversely affected in the next few years due to the unhealthy business environment in the country, said Senior Partner, Gajma and Co, N.R. Gajendran.

He was speaking at a seminar on the '2008 National Budget' organised by the Zonta Club 2 Colombo.

Gajendran said since interest rates have increased to 20% - 22% a business organisation will need a gross margin of 30-35 per cent to break even. Interest rates were around 10-12 per cent this year.

"Due to the sharp increase in interest rates the credit policy is getting altered. The two to three months credit policy is now equal to four months", he said.

The input tax is restricted to 85 per cent of the output tax. When the gross margin is less than 29 per cent from an importer there will be a long unabsorbed input VAT credit. Though it may reflect as an asset in the books it is not so.

He said a business organisation that was making profits will suddenly be at a loss due to the unfavourable business environment.

"The allocation of Rs. 215 billion for priority development areas is not sufficient to complete all infrastructure projects within 2-3 years. There had been no adequate development in infrastructure over the years though money had been allocated", he said.

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