The decision to restructure and revive State Owned Enterprises which has been a major liability to the state, widening the tax net and slashing the public sector retirement age at the interim budget presented last week were commended by industry experts and business personalities.
Advocacy Chair and Board Director, CFA Society Sri Lanka, Ravi Abeysuriya said the interim budget has taken some key policy decisions in the right direction, to remove the huge burden on the people by restructuring the State Owned Enterprises, including the issue of state bank shares to employees and depositors and re-establishing the National Agency for Public Private Partnership.
The implementation of the new Central Bank Act and widening the tax net by making all those who are over 18 years of age to open tax files is imperative for the country’s economic progress.
However, the key challenge for the Government is to ensure the budget proposals are implemented, as the track record of successive governments in implementing Budget proposals is very poor”.
Senior Professor, Weed Science, University of Peradeniya and President, Weed Science Society of Sri Lanka, Prof. Buddhi Marambe said the interim budget has a major focus on the agriculture sector (crop and animal) and food security for the remaining four months of the year.
The Budget recognises that there is food insecurity in the country, a decrease in harvest, shortage/lack of agrochemicals (fertiliser and pesticides) and other inputs, shortage of seeds and planting material and abandoning cultivation, that there is a need for fusion between agriculture and entrepreneurship, the value of value chain development, the importance youth engagement, the need for technological interventions, the need for productivity enhancement in crop and animal production, the need for capacity building in post-harvest management of agricultural produce, and the importance of promoting export-oriented agriculture.
It also has made several interventions to achieve these aims such as efforts to fuse agriculture and entrepreneurship, especially focusing on youth and considering crop and animal production and value chain development, while promoting export-oriented agriculture, are important interventions proposed to sustain agricultural development.
Financial allocation for the production of seeds and planting material to support cultivation and dairy production would result in productivity enhancement, reduce foreign exchange drain, and strengthen the agricultural economy and livelihood of the farming community, proposals to build capacity on post-harvest technologies, including reducing food wastage through proper packaging, and using railway facilities where possible to transport fruits, vegetables, tea products, making the supply chain more efficient are important interventions to reduce food miles, food losses, and food prices, implementing a National Food Security program considering the food system, and initiatives to develop a Food Security Bill as a new law to support stabilising the agricultural economy and facilitate growth should be commended.
Former Deputy Governor Central Bank W.A. Wijewardena said it is more a policy statement than an interim budget. Except a few such as reduction of the retirement age of public and private sector workers, all other policies will need over one year to implement and hence they have to be carried forward. This needs a mechanism to ensure their continuity. Since the Government is notorious for not implementing Budget proposals fully, we have to evaluate them ex-post after one year how far they have been implemented.
The Interim Budget 2022 presented by President Ranil Wickremesinghe last week included suspension of the purchase of fossil fuel-based vehicles to promote use of only electric-powered vehicles for the public sector, suitable categories of vehicles to be decided on the basis of the efficiency and prices of the vehicles in purchasing vehicles for the public sector. Encouraging the manufacture of electric bicycles to reduce fossil fuel use.
Tax concessions for imported accessories and parts needed for the manufacture of electric bicycles locally with over 50 percent value addition.
An additional monthly allowance of Rs. 2,500 for pregnant mothers in addition to the Rs. 20,000 already provided for them. Provision of Rs. 10,000 per family for a further four months for around 61,000 food insecure families. Increase of the monthly Samurdhi allowance between Rs. 5,000 to Rs. 7,500 per month for around 1.7 million currently Samurdhi receiving families. Increase in the allowance for elderly, disabled, and kidney patients from Rs. 5,000 to Rs. 7,500. National Food Security Program to be introduced covering broad areas, including the enhancement of production, collection, storage, and distribution of food, as well the provision of food to those who do not have the capacity, to ensure food security and implement the same as a national priority.
Paddy farmers with two hectares or less who are in repayment arrears of cultivation loans given by the state banks as of May 31, 2022 due to the decrease in harvest, lack of fertiliser, agro-chemicals and inputs, and abandonment of cultivation was 28,259. Aimed at strengthening the farmers and freeing them from debt burden, actions are being taken to write off the outstanding loan amounting to Rs. 688 million (excluding interest) which is currently in default to the state banks. The money to be written off will be paid back to the respective banks in two years in a phased manner so as not to put added pressure on the cash flow of the General Treasury.
VAT to be increased to 15 percent from the current rate of 12 percent with effect from September 1.
Compulsory tax registration for all residents who are above 18 years of age without considering their annual income and tax-free thresholds.
Reduce the retirement age of public sector and semi-governmental employees to 60 years.
Earlier, the Government decided to raise the mandatory retirement age of public sector employees to 65 years and that of semi-governmental employees to 62 years.
Reactivate the Statement of Corporate Intent (SCI) process for key 50 SOEs, excluding CEB, CPC, and Sri Lankan Airlines, as they are under different efforts to restructure, to closely monitor the set targets.
A committee consisting of three government officials including the Controller General of the General Treasury will be appointed to supervise and implement the entire process of the disposal of scrap materials accumulated in public sector institutions.
State Banks:
Allotment of 20 percent shareholding in state banks to the depositors and staff of those banks
• To meet recapitalisation requirements borne out due to the increase in interest rates, rising NPLs, loan settlement issues faced by businesses due to economic crisis, and liquidity issues faced by the state banks, it is proposed to allow 20 percent of shareholding of the Bank of Ceylon and People’s Bank by their depositors and staff.
• It is noted that the government’s ability to provide additional capital at this stage to the state banks is very limited given the lack of fiscal space.
Debt and debt management:
An independent National Debt Management Agency (NDMA) will be set up to pay special attention to the management of public debt.
The government debt management-related activities are carried out by the Central Bank of Sri Lanka, External Resources Department, National Budget Department, and the Treasury Operations Department at present.
Investment promotion:
A national agency named the National Agency for Public Private Partnership will be set up for the purpose of identifying and facilitating investment to be undertaken in partnership with the public and private sectors, and it is proposed to allocate Rs. 250 million for the implementation of this proposal.