National Chamber of Exporters raises concern over new tax, cost issues

The Council of the National Chamber of Exporters (NCE) which comprises Sectoral Heads representing different products and services sectors has deliberated on issues of concern to the export sector, and also their impact on the cost of doing business.   The issues discussed highlight the following:

Inconsistency in policies, and ad hoc policy changes 

Concern has been expressed regarding the inconsistency, and clarity of macroeconomic policies which impacts the confidence of entrepreneurs and investors to engage in business, and their adverse impacts in the medium term. Further, ad hoc policy change announcements from time to time without consulting the relevant stakeholders creates confusion and uncertainty. For example the recent changes in regard to direct and indirect taxes is a case in point.  While the Prime Minister announced in the earlier medium term economic policy statement that the ratio of direct taxes and indirect taxes will be improved to 60:40,what was subsequently implemented by the Finance Ministry is the reverse, which further increases the proportion of indirect taxes due to change in the VAT rate.  Government intervention in private sector wages is another example.  At present there is no clear cut trade policy, taxation policy and wage policy.  

Currently there is a good opportunity for the two main political parties in the Government to agree on core national policies related to the above and other areas which will ensure long term sustainability of businesses, and also create confidence in the minds of prospective investors to attract Foreign Direct Investments as well. 

Increase of the Corporate Tax of export ventures. 

The Budget proposals for 2016 increased the Corporate Tax of Export Ventures from 12% to 17.5%.  Additionally the recent increase of VAT from 12% to 15 % is considered to affect the cost of certain inputs although export enterprises are zero rated in regard to VAT.   This is due to the fact that certain suppliers of inputs to exporters charge VAT although they are not registered for VAT while others are not registered for SVAT.  Proper Tax administration would ensure that such suppliers are included in the Tax Net to enable increase of government revenue, and also reduce the cost of production of exporters. 

The requirement to repatriate export proceeds within 90 days. 

Although the recent announcement regarding the requirement to repatriate export proceeds within 90 days by all enterprises including BOI Companies ensures a level playing field, some exporters have expressed concern regarding the sudden announcement, without prior consultation since they have entered into contractual arrangements with buyers to provide credit facilities beyond 90 days in order to be competitive in their transactions vis a vis their competitors.    At a recent discussion the Minister of Finance has had with members of the Council of the Chamber it has been stated that exporters could obtain a SLECIC Insurance for any extended period beyond 90 days, and use it as a guarantee to obtain Central Bank approval.  However, it is understood that SLECIC is not in the position to guarantee payments of buyers in regard to extended terms although it is in a position to issue cover for non-payment of buyers under contract following proper assessment of such buyers.  

Government intervention in the wages of private sector employees 

Legislation that has been enacted based on the budget proposals for 2016 requires Private Sector Employers to pay an additional Rs. 2,500/- per mensum to each employee. 

 The sudden intervention by the State has created uncertainty among private sector employers who request prior consultation in regard to issues of this nature to avoid uncertainty related to the viability of business, and their performance. It has been pointed out that many private sector employers already pay their employees higher wages and also provide additional benefits over and above the minimum that is payable under the relevant Wages Ordinance regulations.   

In this background imposition of additional ad hoc wage increases will have a bearing on the increase of prices of local products and thereby increase the ‘cost of living’ of workers will compel them to demand additional financial benefits from the employers, adding to the cost of doing business.

Increase in the annual license fee payable by companies to the Registrar of Companies

According to a circular issued by the Department of Registrar of Companies implementing a budget proposal for 2016, private companies are required to pay Rs. 60,000/- per annum as a registration levy while public quoted companies are required to pay Rs. 500,000/- per annum and other companies Rs. 100,000/- per annum.  Concerns have been expressed that the imposition of such high fees would dampen company formation especially by SME entrepreneurs at a time when the government desires to boost the creation of enterprises for economic development. 

Exorbitant increases of Port Entry Charges by the Sri Lanka Ports Authority (SLPA)

The SLPA has increased the Port Entry Charges for Light and Heavy Vehicle ranging from 1,667% to 2833% from the current level.  Additionally, entry permit charges for people has been increased, whereas other countries with stronger economies such as Singapore, and even India, impose nominal charges to facilitate business.   As such sudden exorbitant increases of this nature needs to be reconsidered since export enterprises in particular and businesses in general engage in transaction with the Port almost on a daily basis there increases will have an adverse bearing on their operational expenses. 

Relatively high cost of energy. 

In spite of the substantial decrees of oil prices in the International Market Place, the price of fuel remains relatively high compared to the prices that prevail in competitor countries.  Since the cost of fuel has a direct bearing on the cost of generation of electricity as well, there is an overall negative impact on the competitiveness of export enterprises. 

In this context since the cost of fuel in the international market place fluctuates from time to time it is desirable to have a suitable formula which would link the sale prices of local fuel to the prices which prevail in the International market place to ensure predictability of cost of energy.

The Chamber trust the above will engage the attention of the concerned authorities in formulating future government policy.