Experts notice constraints upon closer observation of Budget 2025

• CMA seminar on Budget 2025 features presentations, expert perspectives, panel discourse
• Experts opine Budget 2025 strong in most areas, but lacks sufficient practicality
• Emphasise Budget also ignores problematic implications, particularly in relation to tax
• Ranaweera Associates Managing Partner Athula Ranaweera says robust regulatory mechanisms must be established with regards to tax collection
• Warns that replacement of SVAT with refund mechanism is huge risk
• Advocata Institute CEO Dhananath Fernando says debt sustainability must remain top priority to Govt.
• Emboldens need for enhanced trade via necessary quality upgrades and export diversification
• Senior Economic Adviser to President Duminda Hulangamuwa assures Govt.’s commitment to assisting SME sector
• Shippers’ Academy Colombo CEO Rohan Masakorala points out Budget’s inadequate reach to shipping sector
• Brandix Lanka Managing Director Hasitha Premaratne displays support for rural development policies as way to inclusive growth

By Janani Kandaramage

The Institute of Certified Management Accountants of Sri Lanka (CMA Sri Lanka) hosted a Continuing Professional Development (CPD) seminar titled “CMA Sri Lanka Budget Highlights 2025 –Impact on Business, Economy, and Society,” recently at the Taj Samudra Hotel, Colombo.

The event featured presentations, expert perspectives, and an insightful panel discourse reiterating the importance of sustaining fiscal discipline, inclusive growth, and enhanced accountability measures as proposed in the Budget, while acknowledging its few limitations. 

Ranaweera Associates (Chartered Accountants) Managing Partner Athula Ranaweera made a presentation focusing on the Budget’s taxation proposals highlighting the limitations associated with the income tax changes.

Speaking of one major concern, Ranaweera said: “Previously, income earned from services provided to foreign clients was exempt from income tax, provided the earnings were received in foreign currency through local banks. However, effective from 1 April 2025, this exemption will be removed and such income will be taxed at a concessionary rate of 15%.”

He added that, although this move aligns with the Government’s fiscal consolidation strategy under the International Monetary Fund (IMF) program to broaden the tax base and raise public revenue, legal supervision may be tedious, potentially leading to regulatory exploitation.

Other key concerns expressed include the increasing of the Investment Capital Gain tax rate from 10% to 15% that could lead to damaging implications such as increased capital outflows, with investors seeking alternative tax-friendly jurisdictions. This, he believes, could inhibit the tax’s aim in contributing to revenue through gains from asset sales.

Speaking about the removal of Simplified Value Added Taxes (SVAT), Ranaweera noted the cumbersome nature of the proposed risk-based refund system that will replace it.

“The risk-based refund system expects taxpayers to register and submit quarterly applications. This will create an administrative burden that will be transferred to innocent taxpayers in the form of additional costs,” he opined. Nevertheless, he acknowledged the good of this proposal, agreeing to arguments that this approach helps identify businesses with higher risks for audit and inspection, improving compliance and overall integrity.

In addition, he also conveyed his robust support for new provisions clarifying the chargeability of income tax on receipt of life insurance proceeds, senior citizens being able to file income tax returns manually from 2024/2025, and the digitisation of VAT-registered persons via Point of Sale (POS) machines. He said these steps ensure transparent governance, flexibility, accuracy in transactions, and streamlined operations. 

Discussing the impact on the economy and debt restructuring, Advocata Institute CEO Dhananath Fernando urged that special emphasis must be placed on debt sustainability. He argues that while debt restructuring offers temporary relief, sustainable debt management requires robust economic and governance reforms. 

“Debt sustainability can easily be maintained by not meddling with the macroeconomic indicators of the country. For instance, the Central Bank of Sri Lanka (CBSL) must not artificially push interest rates down as they could trigger bouts of high inflation. High inflation will only perpetuate the cycle of what we experienced in 2022, eroding our debt sustainability.”

Commenting on the effects on senior citizens, society, and individuals, the CEO urged that with the surging ageing population, the country will soon hit a pension crisis that could put the country’s funds at risk. Furthermore, as the present administration inherits a legacy of fiscal deficit and current account deficit from its predecessors, implementation is difficult, he asserted.

The presentations were followed by a panel discussion moderated by Union Bank Chairman Dinesh Weerakkody, focused on the consequences of the Budget to the development of a range of sectors. The distinguished panel of speakers include Gajma & Co Senior Partner N.R. Gajendran, KPMG Tax and Regulatory Principal Suresh Perera, Senior Economic Adviser to the President Duminda Hulangamuwa, as well as Dhananath Fernando and Athula Ranaweera. Other prominent panellists include Brandix Lanka Ltd. Managing Director Hasitha Premaratne, National Enterprise Development Authority Chairman/Director General Lakshman Abeysekera, Shippers’ Academy Colombo CEO Rohan Masakorala, and LOLC Finance PLC Board Chairman Conrad Dias.

When questioned about the anticipated outcomes of the Budget, the Economic Adviser assured participants that the Budget strives to establish an environment for greater private sector engagement by encouraging competitive practices as well as an investment friendly zone. He also stressed that a total of Rs. 232.5 billion has been allocated to the Aswesuma social welfare program and even larger sums on rural development, indicating the Government’s commitment to inclusive growth.

In response to concerns over inadequate aid to the small and medium-sized enterprise (SME) sector, Hulangamuwa explained that, firstly, it is integral to conduct a comprehensive evaluation of its needs and shortcomings before making significant reforms to the sector.

“Before addressing specific needs, it is important to clearly understand the limitations of the SME sector with proper consultation as their challenges tend to be rather complex as they are small in scale. Therefore, if we are to properly address the loopholes in this sector, we must have a clear lens into the specificities of these loopholes,” he stated. “Nevertheless, a few notable Budget proposals include a development bank dedicated to supporting entrepreneurship, providing SMEs with improved access to financial resources. This, in combination with a focus on the digital economy, will help them adopt technologies to increase their market reach. In the short-term, we will encourage SMEs and micro, small and medium-sized enterprises (MSMEs) to join cooperatives, so as to create economies of scale that could help them overcome the challenges owing to size.”

Representing the shipping sector, Masakorala expressed his dissatisfaction with the reforms related to shipping and logistics, stating: “Detailed plans addressing the unique challenges and needs of shipping and logistics have not been prominently featured. Although claims have been made to minimise procedural paperwork and congestion via the expansion of the Port, this is not logistically feasible. Practical solutions to this crisis of port congestion must be suggested; otherwise not even trade can be facilitated.”

Elaborating further on the potential of trade facilitation post Budget, Dhananath Fernando spoke of the need to enhance quality as a means of gaining export competitiveness, noting that reduction in tariffs or lifting import restrictions may be insufficient. He also observed that 2024 recorded a high $ 16 billion worth exports, but this was primarily driven by the service sector. In fact, he highlighted that merchandise exports had slightly fallen between 2022 and 2024, fuelling calls for more export diversification efforts.

Hasitha Premaratne affirmed the Advocata CEO’s remarks, hoping that the Government capitalises on rural agricultural development to export surplus produce. Overall, there was general consensus over the lack of practicality and reach of some aspects of the Budget, but there was more praise than scepticism over the new administration’s efforts at revitalising the economy. 

- Pix by Shehan Gunasekara