Govt. takes tough road with Budget: Eran

• Defends sweeping changes in proposals, says proposals pose more challenges for Govt. than private sector  
• Says efforts were made to provide level playing field and consistency 
• Acknowledges many proposed legislative changes may prove hard but to focus on Customs first 
• Concerns raised on VAT on apartment sales, new bank tax on cash transactions      

By Uditha Jayasinghe 

State Minister of Finance Eran Wickramaratne yesterday staunchly defended the latest Budget, which proposed sweeping changes, insisting the Government was being brave by taking the tough road and pushing for liberalisation even at potential political cost because it assured consistency. 

Responding to questions at the KPMG Post-Budget forum on Friday, Wickramaratne emphasised that incremental change, despite being attempted by previous Governments, had gotten Sri Lanka nowhere. He argued that the many legal and policy changes proposed in Budget 2018 placed bigger challenges on the Government’s political survival than the private sector and the fresh proposals had done their best to assure consistency in policy making.     

“You still have a chance to ensure consistency. Make sure we remain in office,” he quipped provoking laughter from the audience. “I think we have done something to bring some level of stability. By bringing in these laws, we are taking away uncertainty and we are moving into a rule based system. There is no discretionary power; so everyone is treated the same.” 



“We have given a Budget that focuses on tomorrow, not today.”  

The world is shifting and tax income comes from border institutions such as Customs, and as free trade increased around the world, the importance of border taxes will go down, he said pointing out that as societies get wealthier, movement would be towards property taxes and capital gains taxes.    

“We are a middle income country. How do we get to the higher end of the spectrum? For long we have been categorised as a South Asian country - and we will remain so geographically and culturally - but economically, I think we are in the wrong categorisation, because our ambitions are much bigger. So we want to look at managing our economy in terms of liberalisation. We are looking at liability, public finance management, demutualisation, a new Audit bill, securitisation, pensions and a Public Enterprise Act.” 

The Government also wants to repeal appropriation legislation that was brought under the previous administration. Land restrictions, the Rent Act, bankruptcy laws will also be amended. In the next six months, the Finance Ministry will look at institutions under the Ministry such as Customs and amending related legislation including replacing the 150-year-old Customs Ordinance. 

“We want to build an economy that is environmentally friendly. The Government’s policy is to be technology neutral, however, with only initial support like supporting the Transport Board to go green. Taxes on vehicles have been switched to engine capacity because the leakage in the previous system was a significant loss of public money. But this resulted in a social justice issue because more luxury vehicles would have become cheaper.  Therefore we balanced it with a tax.” 

He defended three-wheelers and insisted they had contributed to the economy but acknowledged that they would be regulated through an authority as an industry. Carbon tax is not aimed at revenue generation but more towards protecting the environment. Maximising returns from the Indian Ocean is also the focus of the Government. 

“As with any Budget, we have had constraints but within those constraints we have tried to create an enabling environment. The trend is clear: Successive Budgets have subsidised agriculture heavily, but after 70 years of Independence, it is contributing 7% of the GDP but has taken up 28% of the labour. So socially and politically it is a very important part of the population. However, economically and financially, much needs to be done.” 

Wickramaratne defended policy changes by the Government to change previous subsidies to direct cash transfers, thereby reducing corruption and eliminating the middlemen. The Government would continue to support the sector, particularly through the farmer contributory crop insurance scheme, and in the future any policies would follow the principle of having farmers, kick-in part of the cost so that it can be sustainable. 

“If the country is to go forward, we have to create entrepreneurship. The recent examples have been in ICT. I want to pay tribute to the sector for becoming so relevant to the economy in such a short time. We want to build on this kind of entrepreneurship model, but the cost is high because of our labour laws; so we need reforms in that area. We will give priority to women entrepreneurs.” Budget proposals will also support diversifying exports as only about 5% of Sri Lanka’s basket is exported by small and medium companies. The latter will be connected to supply chains, given mentoring and capital access. “It’s about helping to connect.” 

“The Budget has in one stroke done away with 1,200 para-tariffs. I think it will take us some time to see the implications of that, and if we are serious about a competitive economy, that is where we need to go. There will be winners and losers in doing such things; so we will have a trade investment package for those companies.”  

Touching on education, the Minister noted that SAITM was an ideological battle, but the Government would focus on the need to educate all children and would not take away from parents the freedom to decide how they would like that to happen.       

Central Bank Deputy Governor Dr. Nandalal Weerasinghe giving a brief summary of the Budget was praiseworthy of it placing less pressure on the Central Bank and its ability to make consistent monetary policy. He was also upbeat of efforts to improve exports and investment that would reduce the trade deficit and improve the debt repayment capacity of the Government. 

“As an economist and not as a Central Banker, I may say that introducing VAT on apartments might be negative as Sri Lanka should be encouraged to increase its density as the infrastructure investment and other costs would reduce. This may impact the long term development drive in Sri Lanka,” he said after being requested by the organisers to fill in for Finance Ministry advisor and prominent economist Dr. Razeen Sally.          

Ceylon Chamber of Commerce Chairman Rajendra Theagarajah while praising the Budget overall voiced concern over the Government’s move to tax cash transactions of banks for a period of three years pointing out that such a measure would make it even more challenging for banks to meet their Basel III capital requirements and other regulations.