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| Monday, 22 November 2004 |
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CCC hails budget The Ceylon Chamber of Commerce (CCC) welcomes the revenue proposals announced by the Minister of Finance on Thursday. The Chamber is pleased that a number of the recommendations forwarded by it those relating to extending the tax net, recognition of compliant taxpayers, appointment of a Tax Ombudsman and a consultative process in developing tax legislation, have been accepted. It is noted that the Finance Minister's emphasis on containing the budget deficit is aimed at increasing revenue rather than curtailing expenditure. Whilst the budget proposals and the estimates reflect this, the real challenge will be to raise revenue, which is less within the Government's control than expenditure. The proposals to contain the budget deficit at 7.6% should lead to fiscal consolidation and low inflation. The projected growth rate of 6% will have a further positive impact on generating employment. However, with volatile international oil prices and Lanka's heavy dependence on thermal power generation, the narrowing of the trade deficit and reversing the present balance of payments deficit will be the most pressing challenges ahead. Failure to objectively address these challenges will result in inflation, which would negate the positive features of this Budget. In this context, the CCC would like to make the following observations on certain specific Budget proposals; Positive features The notable features relating to the SME sector are: incentives for advanced technology, creation of an SME Bank with an initial capital of Rs. five billion, and the creation of an SME authority. Export development The proposals to stimulate the export sector including the Export Development Incentives Scheme, reduction in the Port and Airport levy for exports, incentives for small exporters, focus on Floriculture and value added cinnamon, are welcome by exporters and could be expected to contribute to the reduction in the trade deficit to some extent. The apparel sector has endorsed the proposed removal of the Value Added Tax on imported inputs and the other proposals made to advance the industry. Medium scale plantations Since land vested with the JEDB and SPC are unproductive and unprofitable, the proposal to dispose of them in plots of 50 acres or less is rational. Housing for migrant workers Migrant workers, who make a significant contribution to the country's economy, would be afforded the opportunity to improve their quality of life, through the proposed housing loan scheme which would provide a fillip to construction activity. Alternative energy development The proposal to pay US$ 0.6 Cents per unit for small-scale power producers is in harmony with proposals made by this Chamber. The adjustment of VAT rates is also welcome. The relief granted to the depressed segments, by reducing VAT to 5% on essential commodities, is a step in the right direction. The Chamber, is of the view that the limits imposed on input VAT Credit could lead to administrative difficulties and to potential manipulation. This issue will be reviewed to enable detailed recommendations to be made to the Ministry of Finance. Certain private sector companies, which strictly comply with tax legislation, have expressed concern that the increase in VAT by 18%, coupled with the enhanced duty rates, could result in heightened smuggling activities. The VAT concessions relating to capital goods should be extended to all investment projects, instead of being restricted to only those exceeding Rs. 100 million. The other positive features are: Income Tax exemption for agriculture, removal of Income Tax exemptions granted to the gold, gem and jewellery trades, concessions extended to senior citizens earning interest income not exceeding Rs. 100,000 per annum (NB. this exemption should not be limited to interest income accrued from State banks only), the increase in Tax slabs of Personal Income Tax, removal of the Withholding Tax on interest, which will promote the development of the Corporate Debt Market. The proposed incentive for foreign currency holders is welcome. The Chamber recommends consideration of granting the concessionary Income Tax rate of 15% (now available only to foreign citizens) to those holding dual citizenship and returning to Sri Lanka for employment. Economic of Service Charge The reduction of ESC to 0.5% for the wholesale and retail trades and the amendments to the application of ESC partnership income tax coincide with the recommendations of this Chamber. However, the reduction of ESC payable by plantation companies and exporters of traditional products to 0.5%, also recommended by the Chamber, should be seriously reconsidered by the government. Negative features Long term power generation An accelerated program to initiate construction of large-scale power plants, with a view to reducing dependency on thermal power, is required. Sustainability of institutes created The sustainability of new institutions emanating from the budget proposals is uncertain. Some of them may also lead to duplication of existing institutions. The proposals made under Corporate Taxation should not be implemented since: They are against the basic principles of taxation, which is to permit legitimate business expenditure to be set off in arriving at taxable profits; it will place a further burden on companies and their employees who are compliant tax payers and contribute much to economic development; they could lead to manipulation and malpractice; the contribution to government revenue, by disallowing legitimate business expenditure, will be negligible. The proposal to disallow expenditure on travel outside Sri Lanka is a retrograde step, as businesses are required to send their employees on overseas missions for training, company strategy development and marketing and business promotion. These are critical to the transfer of technology, maintaining standards of quality set by international brands and to compete with other countries. Entertainment and advertising expenditure, necessarily incurred for business purposes, should also be allowed, as these are essential expenses in an increasingly competitive market environment. The Ceylon Chamber of Commerce will be actively engaged in this process and submit more detailed and specific recommendations. |
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