FTZMA calls on Labour Minister to address key economic and industrial challenges

• Decides to retain SVAT system beyond April 2025 till reliable VAT refund mechanism, e-invoicing system are in place
• FTZMA extends support to unified employment laws but raises concerns over some provisions
• Critiques Economic Transformation Bill, urging integration of BOI with other export promotion bodies, recommending a single-window approach for investors
• Calls for reducing corporate tax rate from 30% to improve competitiveness
• Expresses concerns over Sri Lanka-Thailand Free Trade Agreement, urges clearer framework to ensure mutual benefits
• Raises operational issues in industrial zones, including monopolistic waste disposal, water rate disparities, shortages, and infrastructure gaps
• Submits report on successful industrial policies in “Asian Miracle” economies and urges systemic improvements for growth

The Free Trade Zone Manufacturers’ Association (FTZMA) recently met with Labour Minister and Deputy Minister of Economic Development Proj. Anil Jayantha Fernando to address critical economic and industrial challenges. 

The discussions, which spanned several pressing issues, highlighted the Government’s efforts to ensure economic resilience while fostering an environment conducive to foreign direct investment (FDI) and local industrial growth.

One of the key takeaways from the meeting was the decision to retain the Simplified Value Added Tax (SVAT) system beyond its proposed abolishment date of April 2025. 

Although there is no proper system to do reconciliations of SVAT and the present Revenue Administration Management Information System (RAMIS) is also unable to support required calculations, the Minister assured that the current SVAT system needs to continue without abolishing it from 1 April 2025 until such time a robust and functional VAT refund mechanism is in place including an E-invoicing system.

Another focus area was the ongoing revision of the Employment Act. A Government-appointed committee is currently reviewing the draft legislation, with a report expected within three weeks. 

The Minister announced plans to create a broader stakeholder committee after this review to finalise the legislation. While FTZMA welcomed the initiative to unify fragmented employment laws, it expressed concerns that some provisions in the draft Act did not fully align with recommendations made during public consultations.

Discussions also centred on the Economic Transformation Bill, aimed at positioning Sri Lanka as a competitive, export-oriented economy and attracting higher FDI. FTZMA expressed reservations about the bill’s current framework, warning that it could isolate the Board of Investment (BOI) instead of fostering integration with other export promotion bodies like the Export Development Board (EDB) and the Department of Commerce. 

The association called for a restructuring of the BOI into a dedicated investment facilitation entity while adopting a single-window approach to streamline investor services. The Minister welcomed FTZMA’s suggestions and emphasised the need for a cohesive strategy to create a favourable environment for both local and foreign investors.

The FTZMA also urged a reduction in the corporate tax rate from the current 30%, arguing that a more competitive rate would align Sri Lanka with regional service export benchmarks. Additionally, FTZMA raised concerns over the proposed Sri Lanka-Thailand Free Trade Agreement (SLTFTA), which it argued lacked a clear framework to ensure mutual economic benefits. The Minister encouraged the association to provide specific recommendations to address uncertainties and mitigate potential risks associated with the agreement.

Operational issues within the country’s industrial zones were another significant topic of discussion. FTZMA highlighted problems with monopolistic waste disposal systems, pointing to INSEE’s dominance in the sector, and called for the implementation of an integrated solid waste management system. Water pricing discrepancies were also flagged, with the association noting that while electricity rates had decreased, water rates remained disproportionately high. Infrastructure gaps, including water shortages and inadequate facilities in several zones, were raised as critical issues requiring immediate attention. 

Prof. Fernando acknowledged these challenges and emphasised the need for systemic improvements to enhance the zones’ operational efficiency and investment appeal.

FTZMA also presented a report analysing the industrial policies of “Asian Miracle” economies, including Hong Kong, Korea, Singapore, and Taiwan. The document, which explored how these nations achieved sustained economic growth while managing IMF-backed reforms, was handed over to the Minister for consideration. Separately, Plant Lipids Lanka submitted a report urging the expedited approval of “Approved Enterprise” status for companies recommended by the BOI for value-added spice exports.

The Minister reaffirmed his commitment to supporting FTZMA’s initiatives and addressing the challenges faced by the free trade zones. 

FTZMA emphasised the need for a collaborative approach to achieve sustainable economic growth, balancing the needs of local industries, international investors, and national development objectives.