NCE conducts post-Budget forum

The National Chamber of Exporters (NCE) conducted a post-Budget forum on 17 November at the Galadari, attended by Minister of Finance Ravi Karunanayake who made brief introductory remarks and thereafter fielded a few questions from participants to initiate the discussions of the Forum. 

He stated that the objective of the Budget this year was consolidation of financial and fiscal discipline for economic development. He further stated that the export sector as well as SMEs had been provided the necessary support and incentives to ensure their positive impact to accelerate economic development. 

Further the focus is to ensure a minimum GDP growth rate of 6% and increase revenue to fund welfare measures and development expenditure adequately to meet the medium term growth objectives, and also reduce unwanted expenditure. He called upon exporters to make use of the opportunities that have been provided for export growth for national benefit. 

NCE President Sarada De Silva in his brief introductory remarks welcoming the participants commended the Government for the proposal to set up and Export Import Bank which was long-felt need and clamoured for by the Chamber. He hoped that the proposal would be implemented early, and expressed concern regarding the negative comments from some quarters regarding the proposal.

Ceylon Chamber of Commerce Chief Economist Anushka Wijesinha who was a resource speaker on general economic aspects of the Budget commented on its focus on sustainable development taking in to account environmental considerations, creating new and better jobs, and shifting the growth model towards Free Trade Agreements and exports. 

He also commented on the move towards expenditure-based tax incentives, the special moves towards expanding tertiary education, and also for the need for exporters to build the skills pool and a competitive work force. He emphasised that consistency of policies and their effective implementation was most vital. 

The main presentation at the forum was made by Suresh Perera, Principal Tax and Regulatory and Director of Secretarial Services of KPMG. He made a very informative and comprehensive presentation mainly related to the tax and fiscal proposals of the Budget and their impacts on businesses, especially on export enterprises. He provided keen insights regarding the implications of the various tax and fiscal measures, with their forward looking beneficial features, and as to how businesses could make use of them for maximum benefit to enable them to contribute effectively to economic growth. 

He also pointed out the discrepancies related to some proposals which require proper definition and legal clarity to enable their proper and effective implementation which were taken note of by the Deputy Secretary to the Treasury and the Commissioner General Inland Revenue who were present to participate in the discussion with the participants to address their concerns. 

NCE Secretary General Shiham Marikar who initiated the discussion with participants requested clarification on the proposal to provide a tax rebate of 75% based on profits subject to a minimum increase of export turn over by 15% related to the current financial year ending on 31 March 2017, since only four months remain for exporters to perform to make use of this incentive. He also requested clarification regarding the payments imposed on online transactions since it could be an additional cost to exporters.

During the interaction with participants that followed the following main areas and issues were clarified. They also include issues related to certain aspects of the proposals which member exporters of the chamber have highlighted subsequently and which could not be presented at the Forum due to time constraints. 

nIn regard to the rebate of 75% on corporate tax payable based on the increase in net profit, subject to an increase in export revenue of 15%, in respect of the current financial year, it was clarified that the increase in export revenue for the current financial year ending on 31 March 2017 will be determined compared to the previous financial year which ended on 31 March 2016. There was no positive response as to whether the incentive will be extended to the next financial year as requested, since only four months remain in respect of the current financial year. Further the request of the exporters was to base the rebate on the increase in turn over instead of net profit.

nConcerns were expressed regarding the proposal to remove the SVAT facility, since the move might once again result in a build-up of refunds, adversely affecting the cash flow and cost of finance of exporters. It has been pointed out that the VAT refund system is complicated and the process of obtaining refunds is a long drawn-out process. This is further complicated since the Inland Revenue Department is always short of funds to make payments and there is still a large backlog. It has been further pointed out that the SVAT system removed many of the problems associated with the VAT refund system and that the process was further simplified by the new software at the Inland Revenue Department. Therefore the exporters do not see the rationale for the withdrawal of the scheme. In response it was stated that the envisaged difficulties will not arise since the facilities for digitalisation of export transactions will be in place shortly. However exporters requested delay in the removal of the SVAT scheme until RAMIS is fully operational 

nThe proposal to set up an Export Import Bank (EXIM bank) was welcome, since it is a long felt need to provide development-oriented financial products to boost investments, and operations of export enterprises including SMEs to achieve national export and economic targets, since the banking system has failed in this regard. It was hoped that implementation will commence without delay, since concerns were expressed regarding the negative comments made in the media regarding the proposal in some quarters. 

nIn regard to the proposal to encourage and facilitate entrepot trade it was clarified that entrepot trading activities will be facilitated on no foreign exchange (NFE) basis, by removing the current legal and regulatory impediments that prevents entrepot trade operations, which have immense potential for development. However exporters stated that the introduction of corporate tax of 14% to this business which is exempt at present will encourage taking the business elsewhere.

nConcerns were expressed regarding the proposal to increase Corporate Tax from the current 12% to 14% for the exports of both goods and services, since exports of services have hitherto been exempted from corporate tax to encourage the export of services to facilitate the development potential of this sector. This is particularly due to the fact that most services exports including the exports of software products take place online, making it difficult to monitor remittances of earnings back to the country, unlike in the case of goods . As such the move could discourage receipt of due remittances by the country. It was clarified that the exemption was likely to be retained only for the export of IT related services.

nIn regard to the proposal to impose a charge for online transactions, and financial transactions with banks exceeding Rs. 10,000, since it could increase the cost for exporters, it was clarified that the banks will be expected to absorb the cost of such transactions.

nIn regard to the proposal to release 20,000 acres of land from the Maduru Oya right bank and other areas to cultivate five major food crops and fruits and vegetables on a commercial scale using high-tech modern agricultural practices targeting the export market, by providing commercial scale farmers with a minimum of 1,000 acres on a long-term lease basis, a request is made to extend this facility to the spices sector since it is well know that spices are scarce and that export orders cannot be fulfilled. Since the demand for Sri Lankan spices (especially pepper) is substantial, production of pepper could be tripled increasing exports in five years because the gestation period for pepper is four years.

nIn regards to the rubber sector the increase in the CESS from Rs. 4 to Rs. 15 per kg to encourage the export of value added rubber products instead of the export of raw rubber, and also the CESS on import of raw rubber it was stated that the requirements of raw rubber imports where necessary of rubber exporters will be considered to be facilitated through a separate mechanism.

nIn regards to the Withholding Tax (WHT) of 5% on specified fees it was stated to be a cumbersome tax to be collected as there is no mention regarding the collection procedure because some service providers submit bills less than the threshold limit to avoid the tax, and the tracking of such bills is not practically possible, thereby SME service providers being affected.

nIt was proposed that the incentives provided for the branding of tea exports be extended to other export products as well.

The Forum was sponsored by Janashakthi Insurance Plc and Hemas Hospitals.