Sri Lankan exporters welcome incentives, criticise lost tax breaks

Nov 08, 2007 (LBO) – Sri Lankan exporters Thursday welcomed incentives in the government’s 2008 budget but warned reduced tax holidays and higher license fees could hurt growth. “The tax and other benefits to the gems and jewellery industry are positive signals as they will stimulate more exports in this sector,” Lakshman de Silva, acting chairman of the Exporters’ Association of Sri Lanka said in a statement.

The reduction of the Economic Service Charge from 0.5 percent to 0.25 percent on all exports is “most welcome” as it is a step in the right direction, he also said.

But de Silva said the government’s decision to reduce tax holidays could affect growth of export industries that have long enjoyed such incentives.

“The reduction in the tax holiday to a three-year period may act as a disincentive and may stifle the growth of the industry in the future.”

He said exporters also hoped that the proposed increase in the export license fee would be kept to a minimum.

“It would have been even better,” he added, “if no burdens are placed on the export sector in order that the export sector remains competitive and bring in much needed foreign exchange to the country.”

The government said in the budget that it was reducing tax holidays given to promote investment as such incentives caused distortions in the tax system.

“The time has come to eliminate these distortions and get everybody into the tax system,” President Mahinda Rajapakse, who is also finance minister, said Wednesday while presenting the budget in parliament.

Tax holidays already granted will not be extended and the government will give only three-year tax holidays other than for ‘flagship’ big money investments, to those in under-developed regions or for housing for lower income groups.

Rajapakse said this was the start of an effort to reduce the prevailing high tax rates over the next five years. .