Budget 2012 catalyst for growth: PB

By Uditha Jayasinghe

The benefits of the tax system have been continued to provide a firm foundation for economic growth, a top official said yesterday.

Addressing a packed post-Budget seminar organised by the Inland Revenue Department (IRD), Finance Ministry Secretary Dr. P.B. Jayasundera admitted that inflation was still an issue and called for more production to protect against food price increases.

The steps taken to promote local rice flour, tea and other small growers have increased money circulation among these businesses, he said, adding that Sri Lanka could keep stable food prices.

“If you don’t borrow, you are crazy. If your projects can generate more than the loans, then you must use it to grow. We can still tap the World Bank, ADB China, India and other countries. This is only about 2% of GDP and there are plenty of local avenues such as EPF.”

UNP MP Dr. Harsha de Silva and Dayasiri Jayasekera also attended the event.

Jayasundera said that the Government did not want to have high interest rates. Access to funds and cost of funds is important and fiscal deficit will be managed in a sensible manner, he added. He criticised people randomly demanding salary increases and showed that extra income comes from taxes. “We maintained a balance. We didn’t focus only on salaries or taxes or investment. We tried to balance and provide a foundation for overall development.”

He called for greater backward integration and import replacement for apparel, dairy and pharmaceuticals, resulting in the proposals outlined by the Budget. Private-Public Partnerships were also urged by him for research and development programmes.

While commending the IRD for its job, he pointed out that nowhere in the world were they liked and said that the institution, taxpayers and policymakers were responsible for tax collection. The IRD was complimented for streamlining its services and working to upgrade itself.

“Taxpayers must get a simple system. I want the IRD to send out a one page return, at least for Small and Medium Enterprises (SMEs). A Budget is not about bringing in new tax and we have managed to move away from that to a Budget being about a simpler tax. We want compliance to grow rather than the IRD becoming policemen,” he said.

He stressed that taxes had become logical and reduced in number. Customs recognises trade policies and VAT as well as excise taxes and special commodity levy to help small traders. Sri Lanka needs to provide incentives in a much more transparent manner, he remarked, recalling that there were too many involvements with Board of Investment and IRD.

With a simplified tax system in 2011, the latest Budget provided more “clarity,” he insisted, saying that the demarcation of SMEs and larger businesses was clearer.

“Investors asked why incentives only for new businesses and not for investors who have been around in the hard times. Having recognised the merits of these arguments, similar incentives have been given in the 2012 Budget for existing investors. These incentives are now a matter of public record.”

Access to technology, research and development has been assured with tax removals being almost total, he said, adding that Nation Building Tax and VAT had reduced upfront cost.  This was to have a level playing field between all investors.

“The deficit must be at a manageable level,” he admitted, “but it cannot be done overnight. There is a need to have deficit of 6.2% at the moment and there must be gradual adjustment.” The revenue for this should come by “messing about” with the tax, he noted, stating that all the main taxes had remained untouched.

He stated that 6.6% of GDP would be funnelled into public investment for infrastructure. “There is no way the private sector can do large-scale roads, harbours, power plants and airports. We must think about doing business with public investment.

Though it is public investment, it is not entirely Government investment. For example, the Rs. 5 billion invested in infrastructure means that the construction industry benefits.”

If public investment was reduced to 6% of GDP, then the Budget deficit would have been at 5-5%-6%, Dr. Jayasundera said, but stressed that investment was seen as more crucial for Sri Lanka at this point. Growth rates must be well above inflation rates for it to have any meaning, he emphasised.

“Numbers that we looked at clearly indicate that 2012 can have another 8% growth. Three consecutive years of growth is something that we can all be proud of. We still have capacity in our industries to fuel growth.”

All’s forgiven, then?

Hours after the tumultuous uproar in Parliament during the presentation of Budget 2012 yesterday, Treasury Secretary Dr. P.B. Jayasundera is captured sharing a laugh with UNP MP Dayasiri Jayasekera (centre) and UNP Chief Economist and MP Harsha De Silva at a post-Budget seminar last evening – Pic by Daminda Harsha Perera