NCCSL commends Budget 2012

By Cheranka Mendis

The National Chamber of Commerce of Sri Lanka (NCCSL) yesterday announced that the Budget presented in Parliament on Monday was a development-oriented Budget with special tools to achieve the targeted level of 8% growth and US$ 4,000 per capita by 2016.

From Left. Council Member S.R Balachandran, Honorary Treasurer H.A Wehalle, Deputy President NCCSL Sunil Wijesinha President NCCSL Asoka Hettigoda and Deputy President NCCSL Tilak Godamanna Pic by Upul Abayasekara

Stating that the only concern the body has is in the area of implementation of the proposals and how prompt the Government will be in implementing them, NCCSL President Asoka Hettigoda stated that the Budget identifies and focuses on key thrust areas for development, which would boost the country’s economy.

The Budget focuses on domestic industrial development, export promotion and import replacement, as well as providing special tax incentives to selected thrust areas such as tourism, agriculture, etc., along with special interests on SMEs.

“For the first time the Government has declared a four-year tax holiday for investments of over 25 billion for the SME sector,” Hettigoda said. “This clearly indicates the pattern of the Government’s focus on extending benefits to the SMEs, thereby recognising their role in the country’s development.”

Incentives specifically given to SMEs include the ability to import machinery and equipment duty free and free of other levies and providing funding requirements for the sector. He noted that funding had been a key issue for SMEs for the last several years and addressing the issue would go a long way in advancing the economy.

All three State banks – People’s Bank, Bank of Ceylon and Rural Development Bank – are now required to set up SME banking units in each district, whereby the SMEs will be provided a place to go for funding requirements.

The Government has also recognised the importance of manufacturing certain items in Sri Lanka, which is called ‘import replacement’. This includes the likes of cement and pharmaceuticals among others, he noted, adding that it created potential opportunities for Sri Lankan companies to produce for local markets with the support of tax holidays and lower income tax at the rate of 12% for an extended period.

“Furthermore, the most important area that was worrying the export community is our neighbours who have been depreciating their currency in the last several months,” he acknowledged.

The announcement of a 3% depreciation in the rupee is therefore a welcome move. “This would make exporting products more competitive in the global market,” Hettigoda asserted. “The whole world is going through difficult times and when our competing nations were depreciating their currency, it was very hard for us to maintain ourselves in the market. We could not be price competitive.”

When asked how those who import goods, add value and then export them would be affected, he assured that the Government had taken steps to balance it out.

“Yes, they will be affected negatively, it is true. But the Government has taken a decision to reduce the import cost to give various tax concessions to those companies in terms of Customs duty and by reducing NBT. Economic Service Charge of certain companies which was Rs. 25 million has been taken up to Rs. 50 million. They are trying to balance it out.”

Looking at Sri Lanka’s key export earner, the apparel industry, the move to strengthen its activities to make it a hub for garment activities has also brought many smiles to the industry. “The proposal to set up a new act, to give more powers to supply chain management, logistics, etc., and also allow textile and companies to release 25% of their fabrics to the local market while giving a lower rate for the SMEs in this trade would definitely help the sector.”

Speaking on the benefits listed out for the expatriate Sri Lankan community, Hettigoda stated that the special five-year tax holiday for the investors would bring in new knowledge and investment to the country. “Further, the incentives given to certain Sri Lankan entities by reducing cess, increasing duty structure and simplifying NBT are also welcome.”

With respect to deemed exporters, it has been clarified even with respect to NBT that they are exempted from it as they are exporters who export their products to trading houses. “In many of the companies in Sri Lanka, they do not directly export; they export to trading houses and there has been confusion with the calculation of NBT. Such points have made us extremely pleased with the proposals to boost the Sri Lankan economy,” he said.

He also acknowledged the policies put forward for the currently booming tourism industry: “They have got everything they wanted. Since they are part of a selected area, even an investment of Rs. 50 million will now get a tax holiday and even if you upgrade your hotels now, you will get a qualifying payment where you can deduct 25% of your investment.”

The regulations have also allowed tourism-related companies to import coaches with a duty reduction of 50% while a sum close to Rs. 500 million has been set aside for coastal conservation.

Commenting on the generally negative sentiments on the Expropriation Bill, he noted that investors had nothing to fear as the President himself had stated that the regulation would not be used to take over other companies.

“NCCSL’s request was to do it transparently, to inform these companies and give them some time to correct the errors. The President said that if the Government gives out land in the future, it should be ensured that the party follows the regulations and laws in the contract, and this should happen. This policy will just be limited to this, the Government said, and this should give confidence to the investors.”

Asked about the budget deficit, Hettigoda stated that the deficit is not present in Sri Lanka alone. “Every country has a deficit; no country has developed without a budget deficit,” he said. “What we should look at is the percentage. With the statistics available with increased per capita income, tourism arrivals, etc., the Government has a chance to loan out money at a lower interest rate. Last year the budget deficit was 7%; now it has decreased to 6.2%. That’s what you must look at,” he noted.