Budget hailed as futuristic

 By Chathuri Dissanayake

The Budget 2017 presented last week drew praise from members of the private sector, for its ‘futuristic’ and ‘holistic’ approach, highlighting that the proposals also demonstrate continuation as it falls in line with the economic policy framework presented by the Prime Minister Ranil Wickremesighe, in comparison to Budget proposals which were disconnected from State policy. 

Kicking off the Budget highlight seminar organised by BDO Partners, Managing Partner Sujeewa Rajapakse, hailed the 2017 budget as a progressive one, “unlike last year’s ‘Robin Hood’ Budget’.

Appreciating the inclusive approach taken by the Minister of Finance by calling for proposals from the general public, Rajapakse said the Budget 2017 was more ‘professional’ and forward-looking compared to Budget 2016.

He also appreciated the proposals in the budget focusing on Small and Medium Enterprises (SMEs). 

“SME sector has been given due recognition. Moreover, the budget indicates that the Government wants the finance sector to get involved and contribute to development while aiming at sustainable growth and better infrastructure,” he said, analysing the proposals.

Right focus 

Panellist at the seminar and Ceylon Chamber of Commerce Chairperson Samantha Ranatunga too echoed the same sentiments describing the proposals as forward-looking, focusing on multiple areas such as technology, education, SMEs and agriculture to develop a futuristic plan, he said, highlighting that Budget 2017 is also in line with the economic policy framework presented by Prime Minister Ranil Wickremesinghe. 

“The proposal looks at lagging districts and gives adequate tax concessions to those who invest in those districts. Education and skill development has been looked at very seriously and facilitated. Agriculture, which is a lagging sector in the GDP has been given diverse impetus by way of attracting technology, by way of getting smaller farmers involved in the value chain and by getting storage solutions which is one of the biggest problems of the farmers community,” he highlighted, drawing a few key examples from the proposals. 

Ranatunga, who is also the Managing Director of CIC Holdings PLC, appreciated the approach taken by the Government to focus on technology and education. 

“We also have to look at how to be technologically able to avail the benefit of latest technologies. To do this we have to increase our knowledge and skill base. To increase this we have to allocate adequate capital, and to have adequate capital society has to be inclusive, the finance has to be diversely spread out. I think all these aspects have been looked at,” he said, commenting on the proposals. 

Further, he also appreciated the efforts by the minister to initiate private sector driven development, highlighting that the minister has challenged the top hundred companies in the country to be involved in the Government in specific development projects. Ranatunga welcomed the move, saying that the same model is practiced in Malaysia.

Rajapakse highlighted the tax incentives given by the 2017 budget also aims at creating more employment and drawing investment to the north and east through tax incentives. Ranatunga too praised the step taken to do away from giving tax holidays to attract investments to give capital allowances which has also been advocated by the Chamber of Commerce in their proposals to the Finance Minister. 

Implementation is the key

The success of the budget is in the manner it is implemented, Ranatunga stressed, highlighting the need to draw up a proper timeline for implementation of the proposals. 

“If implementation is focused on a proper time line, then we have put ourselves on a winning path. In the end, the whole thing boils down to implementation,” he said.

Chairman of Interpretation Committee for Tax Laws and the Inland revenue (IR), Deputy Commissioner General D. Gunatilaka, who presented the main analysis for the day, also stressed on the need for a timeline for implementation, pointing out the number of 2016 proposals yet to be implemented that have been incorporated 2017 budget.  

“We have a number of proposals from the 2016 budget which have not been gazetted yet. IR has given relevant legislations needed but those are yet to be gazetted. Certain proposals have been withdrawn; however other policies have been incorporated to this budget. Some policies such as Economic Service Charge imposed at the point of customs will have to be back dated,” Gunatilaka opined. 

According to her, Budget 2017 proposals also address anomalies in the tax laws, removing exemptions which have created loopholes in the system and simplifying income tax for the benefit of tax payers.  

The move to reduce exemptions in PAYE tax and simplify income tax was appreciated. However, Gunathilaka stressed the need for drafting well thought out regulations to implement the policies, with specific definitions to iron out ambiguities. 

Gunatilaka also said that the Capital gain tax that has been introduced may be a part of the Inland Revenue Act or be enacted as a separate statute. As there a new Inland Revenue Act is also to be introduced the taxpayers will have to wait until the bills are presented in Parliament, she said.

Pics by Shehan Gunesekara

Ravi says time to pay up

Finance Minister Ravi Karunayake highlighted that Government’s aim is to rein-in tax evaders, not impose further taxes on those who are already paying taxes. 

“We don’t want to impose more taxes on those who are paying now, they are paying enough, we thank you, the others, your time is over, time to pay up. We want the people who have got to pay taxes pay taxes. The aim is to have tax revenue at 15%. Last year we have increased this to 13.5 though including new tax years,” he said, explaining the reasons behind amending income tax laws to remove exemptions for exports of goods and services. 

Highlighting that the exemption clause have been misused, the minister said the move will equate all exports putting them in the same category. 

“When we looked at the loopholes, we realised there were some misuse of exemptions given. After close study of the regulation, we figured that the only exemption given right now is to IT sector. We will go through the area and assess how deemed exports are looked at, to see how it assists the real exports, as there are distortions created in the deemed exports assessments.

Answering questions posed by Sarah Afkar on why Simplified Value Added Tax (SVAT) has been done away with as it may lead to cash flow of companies being tied up in the tax system for a long time, Minister Karunanayake said the system has created distortions over the years and needs to be replaced. He assured the business community that what is lost through SVAT would be compensated through the new proposals, in a much more prudent and direct manner. 

However, the move is received with mixed reviews by the business community. Speaking at the forum, Lanka Walltiles Managing Director, Mahendra Jayasekara echoed the concerns of members of the business community to highlight that the elimination process of SVAT would be “counter-productive”. 

“This will tighten the cash flows,” he said. 

Incentives given for corporate sector impractical – MD Lanka Walltiles PLC

Taking a more critical approach to the 2017 Budget, Lanka Walltiles PLC Managing Director Mahendaran Jayasekara was critical of some of the main incentives proposed by the Finance Minister. 

The proposal by the budget to tie incentives to employment generated by the investments came under criticism by Jayasekara. 

“The policy is impractical,” he said, adding that investment cannot be based on employment opportunities generated. 

In his budget speech the Finance Minister Ravi Karunanayake claimed the proposal giving capital allowances to new investments over 100 million with minimum employment of 500, was aimed at generating more employment and drawing investment to the Northern Province.  

“If someone is investing the $ 50 m to $ 60 m, then that industry should be able to run with a maximum of 100 people, otherwise it is not a technology driven industry. Today is the technology age, the Government will have to go beyond that and look at the contribution the investment will make to the local economy in terms of indirect employment and contributions through airports, ports, customs and taxes,” he said.

In analysing the budget Jayasekara stopped short of a blanket endorsement. 

“Everyone will say it’s a growth-oriented budget every time a budget is presented, however I am not really sure if we can be happy about the growth we have achieved so far,” he said. 

He highlighted that fiscal measures alone may not be able to drive the economy forward, as fiscal measures as means of emulating growth has been exhausted.

“The budget is within limits and the minister has outlined how the economy should be guided,” he admitted, “but thereafter, fiscal measures won’t be enough”. 

Jayasekara also raised concerns industries face in accessing resources, infrastructure, and markets, stressing that the Government should focus on assisting industries with access to resources needed.