Stimulating the economy

The first complete budget presented by President Mahinda Rajapaksa following the liberation of the country from the scourge of terrorism mirrored his economic strategy for post war Sri Lanka in clear terms. It essentially contained proposals to move Sri Lanka forward economically to integrate the country with the rest of the world. With no encumbrance of having to devote his energies on waging a war any longer the President has been left with ample scope and space to give free rein to his thoughts and ideas to identify the country’s economic imperatives. There is no longer what is called a war budget for Sri Lanka. It will now be devoted solely for devising measures to build the economy. This is what Budget 2011 has aspired to do.

Hence the wide range of tax concessions granted to both Banking and Cooperate sector, the import and export industries etc to stimulate the economy and ensure the country achieves its development targets.

There have also been other revolutionary steps such as absorbing the public sector to the PAYE scheme, the introduction of a pension scheme for the private sector, a special social security and insurance scheme and the setting up of an Overseas Employees’ Pension Fund. The reduction in tax on personal income from four percent to 24 percent from the existing five percent to 35 percent undoubtedly would be a huge bonanza which could induce savings while the increase in the threshold for PAYE to Rs 600,000 will add to the take home pay of private sector employees who have hitherto being griping about exclusion of the public servants from the PAYE scheme.

But the war battered economy which is just recovering also cannot afford to grant concessions across the board. There is a need to give time for the economy to pick up. This is why the President has stopped short of granting sweeping wage increases to the public sector though what has been granted is by no means insubstantial under the circumstances. He said any wage increase will have to be such that the economy will be able to absorb it. What is important is to give pride of place to stabilizing the economy was his message.

But the President has laid the groundwork for a grand take off the economy. The incentives granted to investors such as the import and export industry, tourism, the concessions to the banking sector etc no doubt are going to rev up the economy generating heightened trade and commercial activity that augers well for the country’s economic future.

The President has made this possible with a complete overhaul of the tax policy replacing it with a simplified system doing away with multiple taxing on industries and ventures that hitherto stifled growth and initiative. The decision to bring down the tax on profits of banking and financial institutions from 30 percent to 25 percent would see more opportunities for borrowing and consequent expansion in investments. This would encourage savings and expand the financial base of the banking sector.

The President has often said that Sri Lanka needs to be integrated with the rest of the world economically. For this to happen our products ought to match international standards and fetch foreign markets. Following on this premise he has granted huge incentives for value added exports.

While a CESS has been slapped on all exports in raw and semi processed form to encourage value added exports income tax has been reduced from 15 to 10 percent for industries with domestical value addition in excess of 65 percent. The reduction of income tax on profits from 35 percent to 28 percent for export companies would mean expansion of the export industry a vital component for the country’s economic well being.

No matter what incentives are granted for economic growth the country needs the human resources to initiate progress. Budget 2011 has addressed this issue in a tangible form. Incentives have been granted for scientific research, a subject harped on frequently by the President, by increasing the allowance of University academic and research staff by 25 percent. Large amounts have also been allocated for human resource development and ICT while consideration has also been given to the importance communication by reducing the minimum floor rates for local calls from Rs 2 to 1.50.

Agriculture too has received a tremendous boost in Budget 2011 as in the past while tea smallholders subsidy has been increased to Rs 500,000 per hectare.

All in all, Budget 2011 has addressed all areas in the economy to get it fully activated and achieve the country’s development goals. What is of paramount importance though is to ensure the proper implementation of the budgetary policies on the ground. For this all organs of the State should commit themselves to the task and put their shoulder to the wheel to get things moving. Sri Lanka has at last got her opportunity to rise up and be counted among the rest of the world. It needs the dedication of all to make this a reality.