NCE conducts productive Post-Budget Exporters’ Forum

NCE SG/CEO Shiham Marikar moderating the panel discussion

EDB Chairperson Indira Malwatta (panellist) at the panel discussion

Vérite Research Director Research Subhashini Abeysingha (panellist) at the panel discussion

The National Budget for 2019 presented by the Minister of Finance on 5 March is generally considered by many as progressive from an economic point of view, in spite of 2019 being an election year. In this context the Minister of Finance has commendably maintained a fine balance between the generation of sufficient revenue to meet crucial expenditure needs in order to focus sufficiently on the vulnerable sections of the population. 

This has been achieved in the overall context of consolidation of macro-economic and fiscal parameters related to the economy, in the medium term. Although the National Budget comprehensively covers many areas of taxation and fiscal measures, the National Chamber of Exporters (NCE) which focusses on the vital exports sector related to the economy, and the exporter community has been very conscious of the impact of the proposals on the exports sector. As such the objective of the Post-Budget Forum conducted by the Chamber was to keep the exporter community updated of the impacts on their export businesses. 

The Forum was attended by a cross section of the exporter community of the NCE membership, special invitees from the State Sector, and expert panellists. The main presentation analysing the Budget Proposals was made by Suresh Perera, Principal – Tax and Regulatory of the well-known multinational audit firm KPMG.

NCE President Ramya Weerakoon in her opening address welcomed the National Budget 2019 as it reflects the Policy of the Government to pursue an export oriented economy by reducing barriers to trade, both domestically, and internationally, by gradually phasing out para tariffs while improving market access for exports. These policies will reduce the cost of imports, benefiting the consumer, and deepen Sri Lanka’s engagement with the world. 

The NCE also commended the support extended by the Budget to the National Exports Strategy (NES), and the Export Market Access Program to increase and diversify exports, as well as the policy to upgrade the quality infrastructure to ensure the quality, and standards of products imported to Sri Lanka. 

The Chamber also noted the focus of the Budget to integrate manufacturing activities of Sri Lanka into Regional Value Chains, and in this context supports the moves to negotiate Free Trade Agreements (FTAs) with China, and Thailand among others, measures to overcome issues related to the existing FTAs with India and Singapore, as well as implementation of the proposed ETCA with India. However, the Chamber requested the Government to involve the private sector effectively in the negotiating process, to make sure that local industries are strengthened to face the new challenges. 

The Chamber also commended the specific measures to promote key exports sectors such as fisheries, spices, gems and jewellery, IT/BPO and tourism which are all potential growth sectors. However, the Chamber was cognisant of the fallout of the proposed trade liberalisation, measures and the actions that should be taken to minimise impact on export enterprise, and employment. 

Another proposal that is welcomed the exporters is the setting up of a ‘Trade and Productivity Commission’, to formulate and implement the Trade Liberalisation Assistance packages for the various products and services sectors, to enable them to adjust during the phasing out period of para tariffs. However, more could be done to facilitate trade through implementation of the proposed National Single Window (NSW).

The Chamber also commended the 2019 Budget for recognising the importance of increasing the female labour force in Sri Lanka which has been decreasing in recent times, and therefore the assistance that has been proposed to provide child and elderly care facilities, as well as improvements to the inflexible labour laws to increase female labour force participation; and the incentives provided to employers to provide employment to persons with disabilities, by providing a subsidy of 50% of the salaries payable to them. 

Panel discussion

The address by the President of the NCE was followed by a panel discussion moderated by NCE Secretary General Shiham Marikar, who initiated the responses of the panel to the various queries sent to the chamber by the membership.

 

• EDB Chairperson Indira Malwatta (panellist) commended the continuity of the 2019 Budget by allocating more funds for implementation of the National Exports Strategy (NES) and the Market Access Program, which was not the case in previous budgets, since Rs. 250 million has been allocated to the NES and Rs. 400 million to the Export Market Access program, to focus on six priority exports sectors under the NES namely IT/BPO, Wellness Tourism, Spices (Cinnamon), Food and Beverages, Boat Building, and Electric and Electronic products. 
  
   

Further support to improve the quality infrastructure cuts across all product sectors. She urged exporters to make use of these support programs to increase exports. In response to a query by the Chamber related to concerns expressed by exporters regarding imports in to the country of low quality, second hand boats, and electrical panel boards which affects the development of local companies, it was stated that they could be supported under the ‘Quality Infrastructure Improvement Program’ since it covers imports as well, by ensuring proper quality and standards for the imported products.

• Vérite Research Director Research Subhashini Abeysingha (panellist) stated that Vérite Research continued to be actively involved in monitoring the implementation of Budget proposals particularly tracking implementation of proposals of exceeding Rs. 1 billion. However, she stated that difficulties were encountered in obtaining sufficient information particularly for expenditure heads which involved more than one organisation in the implementation process. 
  
   

In this regard the Representative of the Ministry of Finance stated that the work of Vérite Research to track implementation, also facilitated the Unit established by the Ministry of Finance in its work to track implementation of projects under the various expenditure items. 

The Chairperson of the Export Development Board (EDB) stated that the EDB had utilised the full allocation in respect of the Budget for 2018. However Vérite Research had not captured it, since they have focused only on expenditure items exceeding Rs. 1 billion.

• KPMG Principal – Tax and Regulatory Suresh Perera (panellist) responded to the query of the Moderator regarding the concerns expressed by the Exporter Community on the Proposal under the 2018 Budget for the requirement of Export Enterprises to export at least 80% of their turnover to enjoy the concessionary corporate tax rate of 14%. In this regard he stated that the Proposal in the 2019 Budget has provided some relief since the incomes arising out of investments by enterprises have been excluded from the turnover, thereby limiting the 80% export requirement to be applicable only to the balance of the gross turnover of an export enterprise. 
  
   
• JAAF Secretary General Tuli Cooray (panellist) responded to the query of the Moderator requesting his views on the Budget Proposal which constraints BOI companies in the Garment sector, in regard to the supply of a limited percentage of their production to the local market, by increasing the tax that is payable. Cooray stated that this proposal has minimal impact on the Sector since the vast majority of the turnover of BOI Enterprises in the garment Sector was for direct exports. However he added that the proposal will have a bearing on the ability of local consumers to enjoy the consumption of quality garment products, since they will be required to incur a higher expenditure. 
  
   
• Ministry of Finance Advisor Deshal de Mel (panellist) responded to the query of the moderator regarding the concerns that have been expressed by the exporter community regarding the reluctance of banks and financial institutions to disburse loans under the various loan categories of the Enterprise Development Program, since it is stated that the Treasury has not honoured payments of the Interest Subsidy components under the various categories of loans. De Mel stated that this had arisen only in the case of the interest subsidy payable under the Senior Citizens Special Fixed Deposit Scheme, and will not arise in respect of the loan schemes under the Enterprise Development Program.
  
   
• Inland Revenue Department Senior Commissioner D.R.S. Hapuarachchi (panellist) responding to the moderator expressing his views regarding the impact of the various taxation and fiscal proposals of the Budget on the exports sector, urged the exporter community to carefully analyse the implication of each of them, to be able to benefit in an optimum manner, to develop their export businesses. 

Presentation by KPMG Principal – Tax and Regulatory Suresh Perera 

Suresh Perera in his comprehensive presentation, dissected the various Budget Proposals, particularly those related to taxation and fiscal measures. He initially focused on the overall revenue proposals of the Budget. In this context he analysed in detail the implications of one of the main revenue proposals namely taxation of automobiles, since it had a bearing on the exporter community as well which heavily depended on transportation of goods related to their export businesses. 

He stated that although taxation in respect of luxury vehicles would have an impact across the board on users of automobiles, the concession provided in respect t of ‘Buddy Trucks’ would have a positive impact on the export sector related to the transport of their goods, since it has a bearing on their cost of production. He thereafter analysed in detail the implications of the various items related to Para Tariffs such as the Nation Building Tax (NBT), Value Added Tax (VAT), Economic Service Charge (ESC), Port and Airport Levy (PAL), Cess Charges, etc., outlining how best exporters could make use of each of them related to their businesses, particularly in regard to their reduction on investments related machinery and equipment.

He also explained the relief measures provided to employers to make best use of the services of female employees related to the provision of maternity leave, day care facilities, etc. 

The exporters present at the forum were able to clarify the various issues related to taxation and fiscal measures from the presenter including the incentives provided to engage in research and development, and other innovative activities as, as well as investment reliefs that would become available for capital investments covering high tech manufacturing activities through the various investment relief measures related to capital allowances.

The general view of the participants was that the 2019 Budget of the Government has many progressive measures to benefit the exports sector.