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| Tuesday, 30 March 2004 |
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Boosting foreign exchange reserves No country can exist in isolation in today's trade-dominated world. Trading with other countries is one of the most effective ways of boosting foreign exchange reserves. Exports are a lifeline for developing countries such as Sri Lanka. Governments acknowledge the exporters' contribution to the economy by granting various incentives and concessions to develop exports. In fact, most countries have a zero-tax system on exports to maximise income generation. It is in this context that the Economic Service Charge (ESC), proposed in the last budget and due for implementation from April 1, 2004, has raised concerns in the export industry. The ESC will be applicable to all entities carrying on trade, business, profession or vocation subject to a turnover in excess of Rs. 20 million or total assets in excess of Rs. 10 million. Each business will be permitted a one time choice of whether the new tax or levy should be applied on turnover or on total assets. The companies should have been in commercial operation for more than two years. The minimum ESC payable by an entity which is liable to this charge will be Rs. 100,000 and the maximum amount will be Rs. 20 million per annum. Depending on the size of the company concerned, these are substantial amounts that could have a serious impact on their operations and profit margins. Small and medium scale exporters with modest earnings will be the hardest hit. The Council of the National Chamber of Exporters of Sri Lanka (NCE) and several other trade bodies have considered this fact and expressed concern that the ESC could have a negative effect on exports. The NCE has written to Finance Minister K.Choksy and to the Treasury Secretary Charitha Ratwatte, urging them to withdraw this proposal. The trade bodies have pointed out that the levy will have a negative effect on business and discourage the expansion of business enterprises. Profit margins are minimal at the expansion stage and serious losses could even lead to bankruptcy. The implementation of the ESC would negate many other measures taken by successive governments to facilitate and encourage exports. It goes against the policy of granting tax holidays for investments and exports. As the NCE observes, the proposed levy would curtail the funds available for overseas promotional activities of business organisations. A substantial promotional budget, unhindered by taxes, is a prerequisite in today's competitive global business environment. Exposure in major markets is a 'must' for all exporters, regardless of their products. Some of our products such as Ceylon Tea are so well-known and popular that extra marketing efforts may seem to be unnecessary. But we must strive to capture new markets for such traditional products as well as for non-traditional products. This is why trade shows held here and abroad are important to attract foreign buyers for our products. Sri Lanka's major international export trade fair - Sri Lanka Expo 2004 - will be held at the BMICH from November 10 to 14. This exhibition will be an opportunity for the large, medium and small time local manufacturers and exporters to showcase their products and services to over 1,000 high-profile international buyers. Conferences, seminars, factory visits and other coordinated activities will ensure that the fair will develop into a significant forum for showcasing Sri Lankan products. The authorities should consider holding such exhibitions overseas as well, in selected major cities. This will enable importers in the relevant countries to ink deals with our exporters far more easily. Sri Lanka already has a permanent trade centre in India. The opening of more such centres should be considered. All such moves would come to nothing if high taxes impede the growth of our export trade. A business environment sans taxes would be unthinkable, as governments depend heavily on taxation to provide services, welfare measures and to maintain State machinery. But taxes must be levied in a reasonable manner that does not stifle the progress of local business enterprises. |
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