Budget benefits for SMEs, agri sector

From the Business Desk

The business community and the public sector hailed the 2012 budget proposals presented by President and Finance and Planning Minister Mahinda Rajapaksa. They that it was a development oriented budget which will take the country towards being the Wonder of Asia. The key economic driver of the economy, the Small and Medium sector received a major boost from the budget with a bundle of incentives while similarly the agriculture sector too received concessions. Proposals were also presented to woo more foreign direct investments by way tax holidays.

Kishu Gomes	W.K.H. Wegapitiya	Janaka Ratnayake
Asoka Hettigoda	Rohantha Athukorala	Anura Lokuhetti

The public sector welcomed the 10 percent increase to their basic salary which is fulfilling yet another pledge under the Mahinda Chintanaya.

Laugfs Holdings Chairman W.K.H. Wegapitiya said the measures taken to strengthen the SME sector is timely as most of the developed countries have achieved growth through SME led economies. “The SME sectors of these countries have contributed 80 percent growth of the overall GDP and Sri Lanka could take a cue from them,” he said.

The action to extend tax concessions under the BOI regime will lead to a high inflow of foreign investment while facilitating more business volumes. The special emphasis given to encourage the research and development process is timely and this will have far reaching benefits in the growth and development of the SME sector.

Export Development Board Chairman Janaka Ratnayake said the devaluation of the Rupee by three percent is an encouragement given to local exporters and they have been waiting for this move to generate more revenue and maintain the competitive edge over other countries. This devaluation will also slow down import growth and demand which in turn will be favourable towards the trade balance.

The exporters will be able to reach targets set as improved volume growth in exports could be witnessed over time. The many concessions granted under the budget which also augurs well for the export sector in the long run by way of tax holidays and incentives. Overall the budgetary measures will provide a positive outlook for the country’s export sector despite adverse global economic conditions.

National Chamber of Commerce Chairman Asoka Hettigoda said there are some key areas focusing on the 2012 budget. Those are development of the SME sector, promotion of new technologies, reducing the imports, focus on new areas of investment such as healthcare, education, tourism, sports, cement, steel, pharmaceutics, fabric , milk powder manufactured in Sri Lanka will be entitled to a 12 percent income tax rate for existing companies and a five years tax holding for new companies.

Further Research and Development companies will pay a reduced rate of 20 percent.

The healthcare service will pay only 12 percent. “Those are the key sectors that can help our economy grow,” he said.

Economist and marketer Rohantha Athukorala said: “The range of tax concessions that will be given to those who invest in new companies in Sri Lanka on the money earned overseas is a positive budget proposal. But we must make industry policy decisions post a private-public partnership (PPP) process. If not this all important proposals will not become a reality at implementation stage. A point to note is that the private sector has Rs 168 billion as cash at banks as at end March 2011 that has the potential to be invested in Sri Lanka too.

The tourism sector which is making great strides with the establishment of permanent peace fulfilled one of their biggest demands by receiving concessions for tourist bus imports.

Caltex Lubricants Managing Director Kishu Gomes said the government made very good decisions in last year’s budget and this year’s budget has reinforced and strengthened the same rather than introducing new items which is good enough.

He said the devaluation of the Rupee is a positive sign for exporters and negative for importers. The inflation will go up as a result of increasing the prices of imported items.The possibility of manufacturing some of the food items in the country could reduce this cost.

KIK Chairman Lalith Kahatapitiya appreciated the reduction of Customs duties for machinery and equipment which will lead to increase productivity and reduce the cost of production. Exporters will have the opportunity of making use of the Rupee devaluation through this.

HVA Group Managing Director Rohan Fernando said the reduction in income tax from the current 15 percent to 12 is good but more emphasis should be given to marketing of tea for the benefit of farmers.

Lanka Ashok Leyland PLC CEO Umesh Gautham said the 50 % tax reduction on tyres is a very good move. “It will greatly reduce operating costs and increase the safety and reliability of the passenger and goods transportation .This move will also offset the diesel price increase and passenger and goods transport charges can be maintained without increase. It will have a big impact on the cost of living and is a very welcome move, he said.

The Removal of VAT on tourist buses is a long felt demand of the tourism industry .Now Quality, brand new, environment friendly tourist coaches can be made available for the tourism industry at affordable prices , that will certainly boost the excellent facilities the country offers for tourism, Gautham said.

CIC Agri Businesses CEO Keerthi Kotagama said the Rs 200 million allocation for the promotion of spatiality rice would help the industry in a big way.

“This would definitely help to increase research and help the country to produce even better varieties,” he added.

The concession offered on high tech equipment too will help farmers to reap better yields.

Commenting on the high tax imposed on the import of green gram, maize, pea nuts and ginger will definelty help the country towards reaching self sufficiency in those areas.

He said ginger is high in demand and it can be grown under coconut trees especially in the Coconut Triangle.

Kotagama said depreciating the Rupee will make the export sector strong and will help the agriculture, tea, rubber and coconut, fruit and vegetables and spices sectors to gain better financial returns.

National Chamber of Exporters of Sri Lanka President Sarath de Silva said this is a budget developed with constructive ideas to harness the potential of SMEs. It covers a wide spectrum of food producers, self-sufficiency, and participation of all the segments of local rural economy. The depreciation of the rupee to enhance competitiveness of entrepreneurs is an appreciative step. Concessions to develop research and development has left room for individual corporates to gain high yields, hybrid seeds and planting material to increase productivity. Plantation crops will also benefit from this move.

“The rice exporting economy is taking back the country to the era of King Parakramabahu and with the global warming and other environmental perils, I think Sri Lanka will have a better chance to export rice to the world market where more gluttony and long range crops have a high demand.

“The production of raw material for the garment industry can be fulfilled with genetically modified cotton and Sri Lanka can become a cotton-based garment manufacturing country and I think Sri Lanka can go beyond our imagination. With this Sri Lanka can equivalent to Thirupur and manufacture towels and other related items needed for the local tourism industry,” he said.

The banks have requested to lend the SME entrepreneurs and some approved commercial banks have also allowed to borrow from abroad and this would definitely help entrepreneurs to acquire more capital to develop the agricultural sector.

Tourist Hotels Association of Sri Lanka Anura Lokuhetti said the reduction of 50% import tax cut for vehicles in the tourism industry and a 50% tax reduction on tyres for buses and lorries is a farsighted move which will support the expected 2.5 million tourists arrival to Sri Lanka by 2016.

“Sri Lanka is not a cheap tourist destination anymore and we have to upgrade our fleet of transport and other related services. This is one of the requirements for the development of the entire tourism industry.

“This is a development oriented budget and various initiatives taken by the government to develop the tourism industry will also greatly benefit the development of other industries like fisheries, agriculture and cottage industries that are interconnected with the tourism industry,” he said.

He also opined that even though giving lands for investors is a good move, the government needs to consider to extend the time period of the lease. Some people take various advantages of government particularly when it comes to acquiring lands for tourism purposes, and they don’t use lands for the development of the country. “My view is that government needs to take back underutilized lands from these investors,” he said.