2017 Budget

Chambers: Vibrant strategy vital to boost FDIs

By Lalin Fernandopulle

Business chambers are strongly advocating a vibrant strategy to attract Foreign Direct Investments (FDI) which is currently at an appalling state, stifling economic growth. While acknowledging the incentives for investments, chamber heads urge policy makers to target sectors that will pay higher dividends.

The Ceylon Chamber of Commerce in its proposals for the 2017 budget states, there should be a shift from profit- based incentives such as tax holidays to expenditure based incentives focused on creating new investments.

The National Chamber of Commerce of Sri Lanka (NCCSL) President Thilak Godamanna said, while several investment incentives are provided they are not properly targeted. The Malaysian government offers tax deductions for export industries spending on patents, brand creation and emerging market development activities. Targeted incentives will help promote the right type of investments. Sustained growth in investments is vital for long term economic growth. Despite the end of hostilities FDI remains at an unsatisfactory level. Statistics reveal the gap between investments and savings as a percentage of the GDP remained at 2.3 percent last year. According to the Central Bank to achieve eight percent GDP growth it is vital to maintain an investment of 30.1 percent of the GDP.

“The Chamber recommends that steps be taken to avert delays in legal proceedings, including contract enforcement, red tape in licensing and dispute resolution, to boost investor confidence. It is not only essential to maintain consistency in polices, but also to improve the perception in this regard and provide incentives to promote high value exports and services” Godamanna said.

Renewable energy

The Chamber calls upon the government to provide incentives to manufacturers to resort to renewable energy sources to meet the energy demand while providing other utility services at concessionary rates.The government should take stapes to dismantle the protectionist para tariffs and adopt policies which are neutral between goods produced for exports and those for domestic market, thus enabling comparative advantage for exporters.

Small and Medium Scale Enterprise (SME) sector, the backbone of the economy needs more focus to develop the sector, which account for around 75 percent of the enterprises in the country.

The NCCSL recommends that a consolidated development bank be set up to support SMEs with low cost funds and grants from recognised agencies through the bank to upgrade the sector.

“The authorities should pay attention to the skilled labour shortage in the country which is a hindrance to development”, Godamanna said.

He said, the Chamber recommends a broader policy framework that would enable diverting labour force from agriculture to exportable manufacturing and services which could increase the overall output per worker and the revenue.

Incentives

“The Chamber is of the view that more attention should be paid on national vocational training to enable youth to acquire skills and meet the demand of the job market” Godamanna said.

With regard to international trade, the chamber strongly recommends anti dumping regulations in the country as it is negotiating preferential free trade agreements with India, China and Singapore to protect domestic industries.

The Ceylon Chamber of Commerce in its proposals for the 2017 budget states, there should be a shift from profit- based incentives such as tax holidays to expenditure based incentives focused on creating new investments. It states that there should be transparency in all incentives and special concessions granted to firms. It recommends steps to enhance tax collection and compliance, streamline taxes to be fair, equitable and predictable, and raise more revenue through corporate income tax.

It also outlines measures to be taken to exempt new businesses for the first five years from paying the high annual registration fee and remove the liquidation fee. The Chamber states, there should be a clear policy on foreign land ownership and establish a land bank, introduce private sector oversight of state-owned business enterprises, strengthen commercial sections in Sri Lankan Foreign Missions.

“We request the authorities to address anomalies in the triple tax deduction for Research and Development,expand state support for students to obtain higher education in fee-levying public institutes and obtain private sector inputs on allocation of CESS funds” a chamber official said.

The National Chamber of Exporters (NCE) in its proposals for the next budget stresses on the importance of branding Sri Lankan garments, spices, tea and gem and jewellery, as the country has inherent strengths in these areas which will help position the country in the global market and expand exports.

NCE recommends measures to formulate a mechanism to ensure hindrance free export operations, efficiency, improvements in productivity and reduce costs in the floriculture and horticulture sub sectors.

“Currently there is no insurance cover for planting material and structures affected by adverse weather. Insurance cover for the agriculture sector will encourage entrepreneurs and investors to undertake investments in new ventures” a chamber official said.

He said, the present policy of restricting foreign ownership in export related enterprises hinders business development.

At present enterprises with foreign ownership exceeding 51 percent are imposed a high land transfer tax which discourages investment in productive enterprises. Implementation of investor friendly land purchase registration will enable foreign companies to purchase land to commence new enterprises and expand existing ventures.

With regard to bilateral trade agreements the chamber appeals to the authorities to consult the private sector and trade chambers on issues related to areas of their concern before finalizing such agreements.

Women’s Chamber of Industry and Commerce of Sri Lanka Chairperson Rifa Musthapha said, the chamber appeals to the authorities to make a percentage of the government procurement and contracts towards women entrepreneurs as in the United States.

The Chamber wants flexible working hours for women in private and government sectors, grants and low interest loans for industries and green businesses, long term lease on lands for new ventures, tax benefits for green businesses in the manufacturing and service sector, and rural infrastructure development to expand industries in the country.

“Improving the productivity of female university graduates in Sri Lanka through workshops and consultancy to address the micro aspects of female graduates, training and development of women, training of trainers and investment in computers and selected software programs”, Musthapha said.

Sri Lanka Chamber of Small and Medium Industries President Mohideen Cader said, the micro, small and medium enterprises form the backbone of the economy contributing around 70 percent of the GDP and generating over 30 percent of employment.

He said;

“In the few years after the ending of hostilities, the government policy, focused on the sustenance and development of the SME sector. A policy document was formulated, with necessary legislation to create a One-Stop shop focused on facilitating and developing the sector.

“ However, with the last budget this focus has shifted, with the business environment becoming increasingly difficult for SME’s to operate. Sudden changes in government policy and lack of clear direction has caused uncertainty denting the business confidence, which is vital for SMEs to survive”.

“While the long-term Vision and Goals of the Government have been spelt out and are welcome in the national interest, creating an enabling environment, for the achievement of objectives in the short-term and sustenance of a viable business environment is vital”, Cader said.