EY Forum highlights salient features of 2016 Budget

By Shehana Dain

Ernst & Young (EY) yesterday hosted their customary post Budget forum, highlighting salient features of the 2016 Budget as well as creating a platform for industry personalities to voice their opinions and concerns.

The forum was the 17th of its kind since EY pioneered the first ever post budget forum. EY Head of Tax Services Duminda Hulangamuwa in his remarks welcomed the Budget as a thrust to the financial sector streamlining the fundamentals of the very first Unitary Government’s budget.

One of the key takes in his presentation was the evolvement of the tax regime to a two band tax system, with a 15% standard rate and 30% higher rate is imposed into five selected industries.

He further said that the biggest impact from the rate change is on the manufacturing sector, as it subsequently moots the growth of the lagging agricultural sector. “You can see that the Government is placing emphasis and thrust to the manufacturing sector. There’s a 13% reduction from 28% to 15%. However there is a slight increase within the areas of exports, tourism, construction and SME’s,” Hulangamuwa said.

Ernst & Young Partner Nishtar Sulaiman, Inland Revenue  Department  Commissioner General  Kalyani Dahanayake, Deputy Secretary to the Treasury S.R. Attygalle, Finance Minister Ravi Karunanayake, EY Partner Duminda Hulangamuwa and Ernst & Young Managing Partner Asite Talwatte at the Panel

Meanwhile Hulangamuwa stressed that if recommended action is not taken it is believed that the profit from the sale of shares quoted in the CSE will now be liable to income tax unless such gain is a capital gain. This will be consequent to the proposal to abolish the share transaction levy by means of the new budget.

He also highlighted that Sri Lanka’s new standard tax rate of 15% and VAT of 8% is one of the lowest in the region while being only above Ireland and Germany.

“In a personal tax view point Sri Lanka is the most attractive for people to work in terms of tax. In the region we are paying the lowest tax rate,” he assured.

The discussion also saw Q&A session in which corporate personalities were able to raise their questions to the panel.

The customary panel constituted of Finance Minister Ravi Karunanayke, IRD Commissioner General Kalyani Dahanayake, Deputy Secretary to the Treasury H.R Attygalle, EY Senior Partner Asite Talwatte, EY Partner Sulaiman Nishtar and was moderated by EY Head of Tax Services Duminda Hulangamuwa. The following are excerpts of the Q&A session:

Asite Talwatte: The budget communicated the Government’s intentions to go ahead with public private partnerships (PPP) Can you elaborate on that?

Ravi Karunanayake: We believe that with the public private partnerships we have put a stop to unsolicited proposals. With this move the private sector has the ability to come up with new ideas and to basically execute them with Government officials. If we believe that there is a way forward there are two options, where a public tender will be taken on, the next one is taking the Swiss model as the benchmark.

Basically we can say ‘here is our land and private sector capital’, if we come forward with the assets that are there, the private sector comes up with an opportunity.

If we take expressways as an example, up to now only two or three countries give loans and 99% get back to the same old country and the people in Sri Lanka get the burden of the interest. What we have to do is ensure that the capital comes from foreign sources, so then the private sector maybe involved in infrastructure. Now no company can come in and start business here alone, they must have a partnership with Sri Lankan companies.

It should be highlighted that the leases on land for foreigners have been removed, but the issue is foreigners who want to come without any local partners. So if they want to come in and do business here, they should make sure the business is Rs. 2 billion and above.

Duminda Hulangamuwa: How will the IRD take up the challenge of collecting the additional Rs. 500 million compared to last year?

Kalyani Dahanayake: This budget has been futuristic and development oriented. We could say that it’s a tax payer friendly budget and most of the concessions have been provided. Compared to other countries in the world we have come to a point where taxation has become simple. The budget encourages people to do business with a decent tax culture.

Q: On liability in interest coming back with the evolution of WHT, does it say that a large number of tax files will be open again?

Kalyani Dahanayake: We will examine whatever interest income we have received so far, if interest income exceeds Rs. 2.5 million then we will have to open a file.

Q: In the proposed megapolis project and also the opening of 1000 factories project, how will those be impacted by this budget?

Ravi Karunanyake: The megapolis concept was conceived because Colombo has over grown itself and we want to make it bigger than what it is. At this moment we are working on different town plans but in the interim till we have a fully fledged plan is place the approach of the existing UDA will continue.  

Within the next six months I’m sure we will have a fully fledged internationally assisted plan put to place.  The Negombo to Katunayake to Colombo to Kaduwela railway is ready to kick off at any point if anyone is willing to come forward either in BOT or BOO basis.

Q: The amalgamation of ETF and EPF has been a serious issue for companies as it incurs a high cost to maintain two separate funds. Why wasn’t this addressed?

Ravi Karunanayake: We at least had the courage to mention it, but as soon as it happened all the unions were against it. We had to invite them to discuss and I must say 90% accepted the spirit. It’s not only about the amalgamation of the two funds, EPF is different to ETF. So as a result we have to incorporate with all of them. I’m sure with the next four months we will be able to come into a conclusion.

 Sulaiman Nishtar: The budget had clearly mentioned policies to encourage investment in the stock exchange. However is there any policy to address taxing profits from trading with shares which is unclear?

Ravi Karunanayake: We will correct it.

 Q: There are many companies who have invested in the country. Is there any incentive for them to expand their capacity or modernise capacity?

Ravi Karunanayke: If modernisation will increase revenue then yes, if not no. Concessionary tax rates have been proposed not exemptions.

Q: Many companies have signed collective agreements with unions and the budget has imposed the private sector to pay Rs. 2500 as an increment. What will the impact be for companies who have already signed collective agreements for wage increase before the budget?

Ravi Karunanayake: As long as you have paid Rs. 1500 in year 2015 and will pay Rs. 1000 next then no problem but if the collective agreement is less than that, you will have to comply.

 

Q: There is a provision to cease the leasing business of the banks. Is there a reasonable period given for banks to discontinue all leasing contracts? Can the leasing section operate as an individual entity?

Ravi Karunanayake: We want the leasing industry to develop. We will rephrase some of the policy statements where the leasing section of banks will be allowed to operate as a standalone entity with no connection to the capital of the bank.

Q: Why was a proposal made to import tea for blending in Sri Lanka as it would hamper the local industry?

Ravi Karunanayake: The exports associations, especially the TEA, told us to open the market as it’s too rigid. The majority in the tea industry requested this, so it’s an opportunity given to them. We will be consulting professionals regarding this.

There are some who have their own brand names who do not want this proposal. So it’s a battle in the tea industry. We will bring in professional expertise before we finally go ahead with it.

Q: When will the emission levy be imposed? Is it for vehicles for over three years?

Ravi Karunanayake: It’s per year so at the start of the year. One clarification has to be made for three-wheelers and motor bikes it’s not the same Rs. 5000; it has to be revised.