Sunday Nov 24, 2024
Sunday Nov 24, 2024
Wednesday, 28 October 2015 00:00 - - {{hitsCtrl.values.hits}}
By Charumini de Silva
Leading private sector associations last week presented their key issues and proposals to Finance Minister Ravi Karunanayake at a unique pre-Budget forum organised jointly by the Daily FT and MBA Alumni Association University of Colombo for the fifth consecutive year.
Over 20 heads from agriculture, industry and services sector associations each in a five-minute pitch listed their most immediate recommendations for consideration in the 2016 Budget by the Finance Ministry.
Deputy Secretary to the Treasury D. Attygalle and Director Economic Affairs Dimuthu Samarathunga were associated with Minister Karunanayake during the brainstorm facilitated by Daily FT-Colombo Uni. MBAA with Standard Chartered Bank as strategic partner.
The private sector leaders’ suggestions ranged from favourable and simplified taxation to policy reforms to continuity in previously taken measures to level the playing field.
Most of the measures were aimed at boosting growth in the areas of exports and local production as well as generating new employment while others focused on improving competiveness, efficiency, productivity and ease of doing business.
Sectors represented included agribusiness, apparel exports, tea, gem and jewellery, software, spices and allied products, rubber products and seafood, manufacture of confectioneries, ceramics and glass, pharmaceuticals, construction industry, condominium, property and housing, shipping, freight forwarding, logistics and transport, motor trade and financial services encompassing capital markets and leasing.
Having welcomed the open and frank brainstorming at the event, Minister Karunanayake said that for the first time in history a separate department would be created at the Ministry of Finance for private sector development from 1 January 2016.
National Agri Business Council, Rizvi Zaheed
The recommendations from the agriculture sector is to improve the linkages between farmers, SMEs and the big companies. These linkages are expected to collaborate work between these stakeholders. What we are proposing is that this collaboration has to involve the Government players in the agriculture sector especially the Department of Agriculture, Ministry of Agriculture to facilitate the knowledge, expertise and strengths available in the public sector to be utilised in a collaborative way with the private sector.
One of the immediate practical suggestions we have is to form a mechanism or scheme to encourage the Government agriculture extension workers to work with the SMEs, to work with the farmers in a more robust manner and work together with the companies in order to improve agricultural productivity and increase and strengthen the supply chain. There are many possible ways to do this.
One way is to work out on an incentive for the extension worker in addition to his salary – either a profit share, which I think, is open for discussion. It’s a revolutionary thought but it is the only way the agricultural sector can breakthrough international standards and the global market. It has to supersede the concept of the pay that is currently given for the agricultural workers through a profit share or incentive.
Now this is a decision that has to be taken. Currently it is happening in a very unofficial way, constraining a real breakthrough of engagement with public sector knowledge in agriculture to improve productivity. So we are suggesting a formalised incentive scheme or a mechanism.
Second is with regard to planting material, which is imperative. Sri Lanka is faced with the problem of getting high quality planting material to boost agricultural productivity. The proposal is to lower the restrictions and manage the risk. The way to do that is twofold.
One is the Department of Agriculture taking the full responsibility while the private sector leads the demand with a variety of seeds and plantation material required. Otherwise lower restrictions, manage the risk and allow the private sector to utilise these materials on a trial basis to compete globally and - more importantly - contribute to food security.
Tea Exporters Association, Rohan Fernando
As the tea exporters, we would like to see the liberalisation of the tea industry, to allow import of tea for value addition and re-exports. An exclusive area may be demarcated for this purpose under necessary supervision with strict labelling requirements to differentiate ‘Pure Ceylon Tea’ and Ceylon Tea blended with other origin teas.
Liberalisation is the only way forward if we are to enhance revenue earnings of the tea industry. This is in sync with our target to improve tea export earnings from the current $1.5 b per annum to $5 b by 2020 by improving our share of the global tea export market of $90 b for tea and ready to drink tea (RTD).
Unregulated and risky trade terms have caused much concern to the Government as well as exporters in real term collection of foreign currency. This also creates a system for undercutting by (unofficially) offering credit terms over and above the stipulated norm. Thus, we suggest a strong monetary policy for payments with extended credit and continued flexibility for payments backed by letters of credit or bank guarantees to create a level playing field.
We also suggest that Sri Lanka Export Credit Insurance Corporation (SLECIC) to be further strengthened to back export credit. Simplify Cess collection on tea exports. At present a cess of Rs. 4.00 per kg is charged on export of pre-packed tea products and the cess on bulk tea exports is 2.5% of the average tea auction price of previous month subject to a minimum amount of Rs. 10.00 per kg. In addition, a promotion and marketing levy of Rs. 3.50 per kg is payable to Sri Lanka Tea Board. It is proposed to simplify the cess payment by introducing a flat rate Rs. 4.00 per kg for all tea exports.
Spices & Allied Products Producers & Traders Association, G.S. Chatoor
There is tremendous potential especially in the cinnamon and pepper industry. Remove export cesses and BTT on spices and allied products. Remove restrictions imposed on plantation companies, enabling them to diversify from traditional crops to cinnamon and pepper.
There are plenty of uncultivated lands with plantation companies for instance between Nawalapitiya and Talawakele; these lands can be cultivated with pepper, cloves, coffee, cocoa and vanilla. Within three to five years pepper production can be doubled from the present level of 15,000 to 20,000 tons. Undertakings should be encouraged to grow these export crops by granting them fiscal and other benefits.
Sri Lanka Association of Manufacturers & Exporters of Rubber Products and Seafood, Prabhash Subasinghe
We have submitted a master plan for the development of the rubber industry that has been endorsed by the Government. We have requested an allocation of Rs.100 million within the 2016 Budget for the implementation of this plan.
Due to a reputation built over time, Sri Lankan rubber products have the potential to grow further in the international market. But there is always a short supply of rubber raw materials in Sri Lanka due to obvious reasons. The Government must ensure the free flow of imported rubber raw material without any restrictions to develop the industry above expectations.
Rubber raw materials for the export industry must be allowed to import without taxes, levies and controls while securing the prevailing regulations. The latex based industries need high volumes of water and the affluent treatments are complex in nature, as the present facilities are totally occupied the Government needs to build another free processing zone with adequate water affluent treatment plants exclusively for the rubber export industry.
Regarding the seafood industry, right now we are exporting $300 m and we expect to increase it to $1.5 b by 2020. Again three points. One is we don’t have enough capacity in Sri Lanka in terms of production, hence we already import, add value and re-export. We would like to continue imports and add value and re-export. Unfortunately, the policy needs to be more fine-tuned for us to increase our production in Sri Lankan waters, because the EU dominates 60% of the Indian Ocean.
The previous Government wanted to bring in larger vessels to catch raw material from the Indian Ocean. There is a new shrimp called vannamei, which is extremely popular worldwide. We would like the restrictions to be removed on imports and produce vannamei shrimp in Sri Lanka. Basically, the farming sector has to grow in Sri Lanka.
Chamber of Construction Industry, Dr. Surath Wickremasinghe
The approval for the stalled projects should be fast-tracked as the industry feels the difficulties to service their lease payments, staff salaries; not knowing their future regarding these projects as to whether they are to be cancelled or re-tendered or to re-commence. Several essential building materials for the construction industry have been stopped by the Government, without suggesting alternatives. These materials include earth, sand and metal. The transport of these materials are also prohibited. This matter is causing severe hardships to the stakeholders.
We believe this matter can be resolved if a committee comprising of representatives from the respective ministries and the chamber stakeholders meet as soon as possible to discuss the way forward. Cost of construction is rising rapidly due to the recent currency fluctuation, as the imported materials average about 50%. At the same time, in the world market, particularly, steel and cement have come down in price and further reductions could be considered by the Ministry.
Furthermore, to compensate the currency fluctuation the Government could consider the removal of CESS to stabilise the cost of construction. There are immediate vacancies to train at least 10,000 by the construction industry. If not, immediately, the Government will have to approve the recruiting of foreign skilled and unskilled labour, it is already happening.
Condominium Developers Association, Pravir Samarasinghe
Supporting the area of development of Colombo and Western Province Megapolis. We believe that a lot of FDI and foreign capital is required to take those plans forward. As a result, the land law is to be re-looked at where foreigners will be allowed to purchase land for certain types of projects, especially large commercial and condominium projects.
On the other hand, to support the demand side we suggested several measures; one is to allow foreigners into the banking system where they can obtain mortgage finance without just resting them to have 100% inward remittance money and allow the banks to decide on what type of safeguards they have taken on borrowings like in other countries. Perhaps the settlements can be done via inward remittances.
In addition, provide a preferential residential status like second home concept where a minimum investment. To reduce the cost of apartments, one areas to consider is to exempt the VAT. Currently there are two types, projects below $10 million there’s zero VAT and projects above $10 million there is a VAT. In general, countries like India and Singapore, it is not included in residential apartments.
Confectionary Manufacturers Association, Adrian Fonseka
There is a debate scheme available for import duties for large scale manufactures, but that facility is not available for small scale manufactures. Because if you take the confectionary industry they do not buy a full container. There are exporters here and they consolidate the container and send, so there is no way mechanism to get the duty retained to be competitive in the SME exporters.
The second point is the import duty on key raw materials are very high in many cases. For example, whey powder; the duty component alone is 140%, sugar it is 55%, vegetable fat 60%. Where the maximum import duty is about 35% and Rs.100 as per kilo. It is cheaper to get the imported products and sell it as there is a very little value addition. Whey powder, the duty check is more than the value of CIF price. Thereby obviously our cost of imports are high. Countries like India produce raw materials in-house, where as we are importing all of them, making our cost of production high. Third point is to suggest soon implementation of the anti-dumping and countervailing bills.
Exporters Association of Sri Lanka, Fazal Mushin
On a macro picture, we are primarily looking at competitiveness. We would like the entire export sector to come under the Board of Investment (BOI), instead of having both BOI and the Export Development Board (EDB) for the export sector. We heard that the priorities are given to the local sector and I think it should be the way forward. Remove all the red-tape and make it a level playing field; give all SMEs space to grow to be large exporters. Bring the EDB and BOI as one unit. Make all local companies more competitive, especially SMEs, and give priority and protection to local investors.
Secondly, formation of an EXIM bank, to give SMEs the much-needed funding to move up the value chain and support exporters to further strengthen the sector. While some may not appreciate the depreciation of rupee, we need to be more competitive and have a better exchange rate for the dollars which would help exporters. Whilst the LKR has depreciated about 7.5%, other regional currencies have depreciated more.
Cut down on all cumbersome hurdles for transacting business with authorities. Facilitate a trading hub for entrepot trade or TIEP to be more simplified. We need to look at developing the educational system; encourage semi-skilled segments. Ensure skills development is supported either to individuals or via companies. Look at ways to allow people of all layers to improve their skill set. Build better capacity in to the education system.
Joint Apparel Associations Forum, K.J. Weerasinghe
The apparel industry at present exports $5 billion, and we expect the sector to reach a target of $8 billion by 2020. With the restoration of GSP+ concession which will happen mid next year, we believe that an additional $500 to $600 million exports will be generated. In this background I think there is a need to expand the capacities apart from the Western Province.
The apparel industry wants to support the employment generation of the country and our proposal is based on employment. Importation of essential materials is another factor. We would like to have a meeting soon after the Budget and implement these proposals made to you all with the largest 25 companies.
Sri Lanka Ceramics & Glass Council, Mahendra Jayasekera
The issue of pricing of the furnace oil. At present the Government is selling a litre at Rs.80 for the industries, while exporting at a much lower price. We have brought this to the attention of the Government several times, but nothing has happened. We expect the Government to look into this matter and consider giving the same price of exporting.
The second concern is development of the red clay industry. There were over 500 red clay manufacturing factories in the country and during the past 20 years over 300 has been closed down. With this proposed ban on asbestos there is insurgence in the industry and we expect more investments to go into this sector. Therefore, if the Government can announce some tax concessions for small-scale investments in this red clay industry, it will greatly support the manufacturers.
If the Government can bring down the threshold investments; right now I think tax concessions are available for investments over Rs.100 million, but in the red clay industry for SMEs if you can bring it down to Rs.50 million that will greatly help the closed down factories to be restarted. We would also like to suggest the Government to soon implement the anti-dumpling legislation.
Sri Lanka Gem and Jewellery Association, A.H.M. Imtizam
There are difficulties in importing raw materials to the country and we suggest that the Government would allow free flow of raw materials from countries such as Africa so that we could do value additions and enhance exports. During the past 10 to 15 years, the mining industry has reduced and land released for it has also declined.
The capital gains in this trade is competitively much higher than most of the other trades. Some foreign companies are trying to have mining rights in Sri Lanka, which is not good for the industry. We should keep our reserves and not allow them to enter. If they are allowed our 2,500-year-old industry would be finished within five to six years. The Gem and Jewellery Authority is training is 3,000 new cutters, which is a good move to have trained employees.
Sri Lanka Pharmaceutical Manufacturers’ Association, Sugi Sivayogarajan
The local pharmaceutical manufacturers command about 10% of the market and we wish to double it soon, but there are certain difficulties. All imported pharmaceuticals are duty and taxes free, whereas we are not. We would like to have a level playing field.
There is a lot of encouragement now to increase investments in the industry and many facilities are given to them by BOI, so if they are entering the market, the Government must first ensure a level playing field. We have forwarded a proposal to set up a pharma-zone and anticipate that the Government would respond to it positively.
Ceylon Association of Ships’ Agents, Capt. Ajit Peiris
All the major shipping lines are in Colombo now. In order to improve business what we really require is to uplift the port facilities and also to fast track on the port side. With new terminals coming up, to operate on a public-private-partnership (PPP) basis. To improve the facilities in the bunkering ships; this will make additional way to generate revenue for the country.
There are many more shipping related businesses we could attract such as foreign ship management companies like they have done in Singapore and Dubai. This will open out new employment and revenue opportunities. Right now we are going about $200 million, but there’s great potential to double that amount easily if we can open out for ship management companies.
Another point is to encourage the maritime training establishments by providing them with tax exemptions, because training equipment is expensive. We would suggest to establish a shipping development fund.
Chartered Institute of Logistics and Transport, Romesh David
Rationalise vehicle import policy in line with an overall transport management policy. Set up duties and taxes of vehicles in line with recovery of actual costs, including a tax component for improving urban public transport. Taking measures to dis-incentivise use of three wheelers for taxis. We encourage/incentivise existing owners to take up other, more sustainable vocations.
Develop and implement a plan for road congestion pricing in urban areas and allocate funding for modern urban transport projects to commence in 2016. Structure the projects to attract a minimum participation of 50% from the private sector. Upgrade the Bandaranaike International Airport, allocate funds and resources to improve ease and cost of doing business with SLPA and SL Customs.
Colombo Stock Brokers Association, Ryan Perera
With regard to developing the capital market, we want new products to come into the market. The one product we have been particularly looking at was the Real Estate Investment Trust, where there will be more participation coming from both local and foreign investments. This is a timely instrument to have, but what is being a bit of barrier is that the stamp duty and the NBT which is charged for direct transfer of land.
The other is the mixed ownership structure in State Owned Enterprises (SOEs) where we would want this market developed to the Morgan’s and Stanley index levels but we have a lot of work to do. We are expecting an active participation from the SOEs in the market.
Federation of the Information Technology Industry Sri Lanka, Shanta R. Yapa
ICT is one sector that’s going to decide the destiny of Sri Lanka. If we can establish a company like Google, Sri Lanka’s GDP can be doubled in no time. We will not ask for tax concessions, but we need the Government’s active participation in resolving these issues, R&D and collaborative research, support startup companies financially via State bank lending facilities; for brand building we need Government support and accept Federation of IT industry in valuing imports of software and hardware.
Insurance Association of Sri Lanka, Dirk Pereira
The insurance industry requests a level playing field. I think you’re very well aware that the majority of the business has gone to Sri Lanka Insurance and the State sector is also considered a consumer. When the State sector is controlling such a large amount of the economy, it is unfair by the other players in the industry.
If you take the National Insurance Trust Fund (NITF), it is also looking at a reinsurance arrangement to support its balance sheet. So I think as prospective buyer the Government has the right to know the ultimate risk carrier.
Mini Hydro Power Producers Association, Riyaz Zangani
Policy consistency is key to enhance the industry in terms of the interest calls, duty structure. The Ceylon Electricity Board (CEB) has created a 10-year plan, but we don’t think that they have given any thought to green energy. We request an energy development policy in line with the President’s manifesto, total green energy by 2025. For us to grow, we need CEB to enhance its grid supply.
Sri Lanka Logistics & Freight Forwarders Association, Tania Polonnowita Wettimuny
Sri Lanka’s infrastructure development is far behind from offering any global standard. It is important that the private sector and the Government work towards developing the infrastructure, especially at the Air Cargo Village, Airport and Ports Authority.
We really need to look at creating automation between Sri Lanka Customs, EDB, Ports Authority and the service providers from our industry. The tax concession given to the shipping industry and consider the freight forwarding and logistics as well. Sensible deregulation of foreign ownership and ensure national interest and safeguard the homegrown talent.
Sri Lanka Shippers Council, Sean Van Dort
The 200-year-old ordinance of Sri Lanka Customs needs to be revised to facilitate present-day requirements. We need a timeline for same as many governments promised this, but never followed up. We hope that the automation of the Customs import documentation and the duty rates would be set up in January as promised by the Ministry.
The liberalisation of the airport ground handling, as there is no competition; hence service levels leave much to be desired and new infrastructure must be added if we are to be a hub in Asia.
The Ceylon Motor Traders Association, Reeza Rauf
The inconsistency of policy is greatly affecting the industry, which is happening in the immediate short-term. The automobile industry is one that especially needs long term planning.
Leasing Association of Sri Lanka, Brandon Morris
The leasing industry has made a big impact to the economy, especially in discovering entrepreneurs and converting them to the SME sector. We see no level playing field with the banking sector coming into the leasing industry. As a result, this has created a lot of bad debts. The industry has not got any concessions on engaging instrument financing and machinery financing which again will boost the economy.
There is not much recourse available like special courts for leasing. It has to go through the normal civil procedures which takes a long time, whereas the banks have that privilege. Thereby, we urge the Government to consider it.
Pix by Upul Abayasekara and Lasantha Kumara
