Federation of Chambers of
Commerce and Industry of Sri Lanka

How we see the Budget Proposal 2012

“The president in his capacity as the Minister of Finance and Planning delivered the 7th consecutive budget of the present government for the year 2012 to the parliament, yesterday. Prior to the preparation of the budget, the president himself, secretary minister of Finance and Planning and most of the line ministries conducted extensive consultations with all stake holders and economic actors of both private and public sectors. This Federation also engaged in this consultations process with all those government agencies particularly by emphasizing the necessity for providing new impetus to revive and development of the Micro, Small and Medium Enterprises (MSME) Sector. It is encouraging to note that the budget proposals 2012 clearly recognized the vital role played by the SME sector and in fact proposed several measures for the benefit of SME Entrepreneurs in the Agriculture, Industry and the service sector.

We observed that the trust of the budget proposals configure inter-alia on five major themes such as (1) continuation of the private sector development friendly tax proposals introduced by the government in the budget 2011. (2) Introduction of enhanced and fresh welfare measures for the weaker segment of the society. (3) Agriculture development and ensuring food security in the midst of rising food and fuel prices in the international market (4) Providing incentives for SME Development and (5) Preparing the economy to meet the future challenges by taking measures to develop the technological advancement and research.

The Business community particularly, cooperate business sector and the personal tax payers are reassured that the extensive and business friendly tax regime and the reforms introduced in the last years budget are continuing without any changes. This will provide much needed business predictability to facilitate future investment in the economy. The new sources of revenue largely generated by adjusting exercise duties on cigarettes and liquor, income from revenue licenses and luxury taxes on motor vehicles, telecommunication charges, Electronic visa system and transfer of profit from central bank and public enterprises.

It seems that the government was keen in sharing the economic benefits achieved so far with the weaker segment of the society who is unable to engage themselves with gainful employment or economically marginalized in the society. A targeted welfare measures have being directed towards income support for low income families, increase of monthly allowance for elders, up word revision of “Samurdi” Allowance, child and women protection, development of most difficult villages and empowering artist and journalist. Increased allocation have also being provided for the provision of drinking water, Electricity for all, investment in irrigation development and the road network and “Divineguma” programme.

Sri Lanka is a Net Food Importing Country. We have seen the food crises of 2008 and its negative implications on the Net Food Importing Countries particularly for urban low income families, children and women. Due to global climate changes, rapid population increase and economic and financial uncertainty, we have to take early measures to assure the food security. It is noteworthy that the budget recognized this fact and proposed measured to facilitate agriculture research, seed development, strengthening expansion services, allocation of resources for fisheries and livestock development, removal of V A T, import duty and taxes in agriculture inputs and further enhancing the “Gama Neguma” Programme.

The FCCISL many times highlighted institutional and administrative difficulties encountered by the SME Sector in obtaining financial facilities from the commercial banks. We are pleased to note that the budget proposes to establish special branches of People’s Bank, Bank of Ceylon and Regional Development Bank in all districts to serve specially the SME Sector. It is also encouraging to observe that government is providing a 50% guarantee for banks providing loans to restructure SME Sector. The threshold income of the ESC was increased from Rupees 25 million to 50 million. The commercial banks were encouraged by reducing their income tax from 28% to 24% on interest income received on loans provided to SME Sector. SME engaging collection of fresh milk, Green Tea leaves, Cinnamon and latex are exempted from NBT. The SMEs with a quarterly turnover of less than Rupees 500 Million to be exempted from payment of ESC. SMEs engaged in agriculture, Agro processing, Animal husbandry, processing fisheries product and Art work would be eligible for a four year tax holiday subject to minimum investment of Rupees 25 million. The FCCISL also highlighted for the necessity of simplification of taxes, levies and other charges being paid by the SME Sector to a number of Government Agencies at the provincial level. We hope that this issue will also be addressed by the government, soon.

The depreciation of the external value of Sri Lanka Currency by 3% is welcome by the exporters as the competiveness of their products and services in the International Market would increase due to this measure. No doubt that this measure will also enhance the Rupee income of inward remittances of Sri Lankan expatriate workers. There is a tendency for increase of all imports prices marginally. It seems that the government has taken this measure cautiously by making adjustment, moderately.

The second post conflict budget submitted by the government has attempted to continue its development policy Agenda by taking measures to percolate the economic benefits in to the economically weaker segment of the society as well. In this context, both public and private sectors and the civil society at large should assume responsibility to utilize limited resources economically and effectively by re imposing transparency and accountability, across the board.

Federation of Chamber of Commerce and Industry of Sri Lanka
22 November 2011