The forthcoming budget which will be presented on the theme ‘Empowering people and Development’ will focus on increasing the number of entrepreneurs in the country and eliminating all obstacles, State Minister of Finance Eran Wickramaratne told Business Observer on Friday.
He said the number of entrepreneurs in relation to the country’s workforce is dismal compared to Thailand and Vietnam which is around 19-27 percent of their workforce. Entrepreneurs as a percentage of the workforce is less than three percent in Sri Lanka.
“Labour laws and regulations to encourage the flow of foreign direct investments will be amended to support entrepreneurship creation in the country,” the Minister said.
Priority will be given to increase the quality of education and promote vocational training through the budget which will help create an entrepreneurship culture in the country.
“Infrastructure development will also top the priority list in the budget to accelerate development of all major sectors of the economy. Roads, highways, ports and airport and public transportation will be developed to meet global standards,” the Minister said, adding that the budget deficit will be reduced from around five percent to 3.5 percent by 2020 and the trade deficit will be narrowed through export promotion.
However, economists and corporate leaders say urgent measures should be taken to restore confidence in the economy with sound and stable macro and micro economic policies.
Professor in Business Economics University of Colombo H.D. Karunaratne said the macro economic conditions are not in good shape. Therefore, government should urgently take steps to restore confidence on the economy especially among investors while introducing policy measures to increase productivity focusing on exports which will help solve the external and internal gaps.
“Exports could be increased by encouraging more local manufactures to go into the export market. Entrepreneurs cannot be created by only providing loans. Education to improve financial literacy, technological now how and skills development are essential factors to groom entrepreneurs.
Principal Tax and Regulatory KPMG Suresh Perera said as the budget is presented in a year of elections many tax proposals to appease the masses could be expected. Individual tax brackets may be revisited by the policymakers. New Indirect taxes should not be introduced as there are too many such taxes under various name. The Indirect Tax burden on the common man is heavy compared to the return and facilities provided.
Tax relief measures are expected from the budget. As per the Ministry of Finance Report of 2017, Income Tax forms only 17 percent of the total tax revenue. Around 83% of the tax revenue consists of indirect taxes, import taxes and miscellaneous taxes. Sri Lanka’s direct to indirect tax ratio is inequitable. A policy statement was made that direct to indirect tax ration would be reduced to 40:60. The collection from Domestic Consumption Based Taxes such as VAT, NBT, Excise is 32% whilst import based taxes are approximately 49% from the total collection.
We could expect that certain policies issued by the Ministry of Finance in October 2018 to be included in the Budget. These policies include exemption of the interest earned by children under 18 years of age, reduction of WHT rate applicable on rent from 10% to 5%, exemption of interest paid to non-residents on loans obtained by any person, exemption of any gain, interest earned by non-residents on sovereign bonds denominated in local or foreign currency, issued by or on behalf of the Government. Recently, a five-year tax exemption to the agricultural based small and medium industry was announced.
This also may be included in the Budget. Lack of FDI being a teething issue, one may expect the policy makers to introduce an incentive package and also to rectify the drafting errors in the current Inland Revenue Act.
An analyst of the tax regime in Sri Lanka, may observe that the country lacks a cohesive, long term tax policy that is in harmony with other polices in the country such as the housing policy, export policy, investment policy and construction policy among others. Sri Lanka is in desperate need of a stable, knowledgeable and strong tax policy making body to ensure that the country will have the benefit of a long term tax policy along with short term measures to address the pressing issues.
At present what we observe is tinkering of the system with ad-hoc measures. In this context the implementation of the National tax Council proposed in the Budget Proposal of 2017 is vital. In the same Budget Proposal, the introduction of a Tax Ombudsman was proposed sans any steps to implement it. The implementation of the Office of the Tax Ombudsman is also important to address the grievances of the taxpayers.
Ceylon Chamber of Commerce Past Chairman Suresh Shah said the country needs to see higher growth in the economy in the coming years which is pivotal to attract both local and foreign investors.
“Strengthening the macro economy should be given prominence while policy measures to drive exports should gain attain in the budget. Education, health and infrastructure development should top the list in allocating funds,” Shah said.
The Budget for 2019 will be presented on March 5 under the Medium Term Fiscal Framework (MTFF) by adopting the performance-based budgeting approach with the aim of strengthening the ongoing fiscal consolidation programs.
According to the Appropriation Bill for 2019 Rs.2.2 trillion has been allocated by the government for repayment of debt. The State expenditure will be Rs.4.4 trillion and State revenue Rs.2.4 trillion. The State revenue which was 11.5% of GDP in 2014 has been increased to 15.12% of GDP in 2019.
Economic growth this year according to the Central Bank is projected to be around 4 percent marginally up from a subdued growth last year.