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Sri Lanka Chamber welcomes budget 2015

Oct 27, 2014 (LBO) –Sri Lanka’s Ceylon Chamber of Commerce welcomes the ‘National Budget of 2015’ which is presented to the parliament last week, the chamber said in a media release. The Media Release by Ceylon Chamber of Commerce

The Ceylon Chamber of Commerce welcomes the commitment to continued fiscal consolidation in the Budget 2015, particularly the projected lowering of the deficit to 4.6%, which is supportive of macroeconomic stability.

Whilst there is a proposed 15% increase in government expenditure, given the slack in demand in the market recently, a degree of fiscal stimulus can be accommodated without substantial over-heating of the economy.

However, the Chamber encourages the authorities to act quickly and decisively if there are signs of significant deviation from the government’s commendable targets for inflation and the current account of the balance of payments.

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Given the proposed changes in VAT, NBT and PAYE taxes and the fact that nearly two-thirds of the proposed new revenue for 2015 has been estimated to come from the refinance facility for collection of tax arrears, meeting the proposed revenue targets may remain a challenge.

It is encouraging to note the gradual shift in the nature of tax incentives away from blanket, long-term tax holidays towards alternatives that are more targeted, such as accelerated depreciation, tax holidays with defined time horizons, and tax concessions that are directly linked to the amount and type of new investments undertaken.

The Chamber welcomes the new initiatives to better link revenue and other state agencies and stronger integration of ICT in revenue collection.

It also supports the proposal to have a one-stop-shop service center at Sri Lanka Customs, which will contribute to improved trade facilitation. These measures will improve the ease of doing business in Sri Lanka, which is often more important than granting tax concessions.

The Chamber acknowledges the positive measures which have already been undertaken to promote exports, including entering into Free Trade Agreements (FTAs).

However, realizing the full potential of these would not be possible without a concerted effort at improving Sri Lanka’s export competitiveness.
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In this connection, we cannot overstate the importance of encouraging export-oriented foreign direct investment (FDI) into Sri Lanka.

The reduction of electricity tariffs is welcome given that high energy prices are a key factor affecting competitiveness of Sri Lankan enterprises. Moving forward, the Chamber recommends the implementation of a transparent and market-reflective energy pricing mechanism, rather than ad-hoc adjustments.

We also recommend that attention is placed on addressing the quality of electricity supply, particularly issues of power brown-outs and fluctuations, and efficiently meeting the emerging needs of industries.

The Chamber is encouraged by the increased attention to education contained in the Budget 2015, and its emphasis on strengthening Sri Lanka’s potential as a knowledge economy.

The Chamber particularly welcomes the proposals to invest a further Rs. 15 billion in school laboratories; to introduce a scheme of school-based teacher recruitment; to expand skill development and vocational training; and to establish new faculties and degree programmes in science, technology, management and multi-disciplinary studies across several universities in the country.

The Chamber observes that while many of the spending proposals on education are focussed on enhancing access and affordability, a stronger focus on improving the quality and relevance of education at all levels is a critical pre-requisite to increase productivity and competitiveness in order to achieve the ‘Vision 2020’. In this regard, we emphasize the importance of taking a pragmatic approach of public, mixed and private provision of education, training and skills development.

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Measures for further public investment in irrigation and reservoir development contained in the budget are welcome, particularly in light of difficulties faced by communities across Sri Lanka during the recent drought.

Additionally, the proposal to improve the availability of water in areas affected by the kidney disease ‘CKDu’ will contribute to the longer-term health and well-being of these communities, which in turn strengthens their economic potential.

Given the changing demography of Sri Lanka’s population and the associated challenges in expanding social safety nets, the Chamber recognises the need for introducing pension schemes as envisaged in recent budgets including Budget 2015.

However, the Chamber cautions against pension systems that are non-contributory and that are occupation-specific, as they could lead to fragmented schemes that experience difficulty in making steady payments, and are expensive and unwieldy to administer. A pension scheme that is professionally managed and sufficiently robust to meet the financial obligations of an ageing population is desired. While recognizing the hardships faced by senior citizens in a low interest environment, we urge the authorities to exercise caution in implementing the proposal for offering a 12% interest on deposits in state banks, to avoid creating distortions that could have a negative impact on the financial sector. Moving forward, the financial needs of senior citizens should be addressed through the development of pension products.

While substantial new financial allocations have been made for various government institutions and development programmes, the Chamber emphasizes the need to accompany them with reform of the operating structures of the institutions utilizing these funds so that the envisaged outcomes can be better realized.

Overall, while acknowledging that any budget must be seen in a policy continuum, and is one in a series of ongoing measures to reach national economic goals, the Chamber observes that the proposals contained in the Budget 2015 must be complemented with measures that help achieve the economic transformation envisaged by the government in its ‘Vision 2020’ and ‘Five Hubs’ strategies.

To achieve this transformation it is also important to avoid the current over-emphasis on subsidies and welfare transfers that have the unintended consequence of keeping people in low productivity and low income-generating economic activities.

Finally, the Chamber encourages the initiation of work towards an accrual-based accounting system for government finances, with a view to full implementation by the year 2020, in line with best practices adopted by other middle-income countries.

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