Tax expert and Senior Partner Gajma & Co N.R. Gajendran said there are certain striking features in the Budget not seen in previous ones such as the move the make expenditure efficient and effective by focusing boldly on the same. The annual expenditure warrant to be made quarterly is a sound move.
The proposal to make revenue collection equitous as new taxes are not so much on the magnitude. The use of technology and connectivity to enhance revenue collection is a commendable while the use of KPIs to motivate public sector workers is noteworthy, Gajendran said.
However he said certain moves are a cause for concern. The is nothing specifically to deal with the mandatory conversion of foreign currency earnings which will have a negative impact on foreign direct investments and the business confidence and ease of doing business ranking of the to the country.
Revenue has been overestimated as additional revenue of Rs. 725 billion targeted. Recurrent expenditure reaches Rs. 3 trillion where as in the Appropriation Bill it was Rs 2.5 trillion. There is over reliance on non banking borrowing and there could be a possibility of continued borrowing from the central bank which could lead to money printing, Gajendran said.
Former Stockbrokers Association President and Current Candor Group of Companies CEO Ravi Abeysuriy said the key challenge facing the Government is the burgeoning debt stock where country’s debt-to GDP is estimated to reach 102.8% at the end of 2021. The Government plans to generate a total revenue of 12.3% of GDP with planned expenditure of 21.1% of GDP for 2022 as per the Budget. Although some effort has been made to increase Government revenue and reduce Government expenditure in the Budget, a lot more attention is required to increase revenue by widening the tax net with full implementation of RAMIS, improving the tax collection efficiency and compliance.
The Banking and Finance Sector will have a negative impact with the one-off 25% surcharge tax and increase of financial services tax by 3%, which is already confronted with debt moratoriums and increase capital requirements under Basel III reforms. The other sectors that would have a negative impact as a result of the revenue proposals of the Budget are the Telecommunication Services, Insurance and Food, Beverage and Tobacco sectors.
An attempt has been made to reduce public expenditure by trimming the Rs.75 billion spent annually on approximately 300 State Owned Enterprises (SOEs) and to improve financial discipline of SOEs by introducing KPIs and appraisal system for the public service in the budget, if implemented properly.
It is commendable for not resorting to significant changes to the Tax Policies announced in 2019 in the 2022 budget, although Covid-19 pandemic had a hugely detrimental impact on the economy.
Former Sri Lanka Tourism Chairman and current Dreamron Group of Companies Managing Director/Group CEO Kishu Gomes said with the deteriorating fiscal position of the country, presenting a Budget that is favourable to people in the short to medium term was not going to be possible.
The Budget with tax revisions such as VAT from 15-18%, new 2.5% social contribution tax, one time tax surcharge of 25% on taxable income from businesses over Rs 2 billion annual income will finally lead to a sharp rise in consumer goods and services in between 10-15% as companies will not be able to absorb these costs with the declining LKR, increasing global prices of raw materials, sharp rise in freight costs etc.
The Budget has not proposed adequate measures to the currency crisis, ban or restrictions on imports in various sectors etc.
The only way forward being a production oriented economy other than milk industry no other significant proposals have been made to reduce import expenditure.
The 2022 Budget made an allocation of an additional Rs. 30,000 million to rectify the salary anomalies of teachers and principals bringing a temporary end to the months-long agitation by teacher and principal trade unions for the salary revision based on the Subodhini Committee report.
The annual state expenditure for 2022 is estimated to be Rs. 3,912 billion while total revenue is Rs.2,284 billion leaving a Budget deficit of Rs. 1,628 billion.
The Government plans to cut the Budget deficit to around 4.5-5 percent of the GDP by increasing revenue.
The budget deficit last year reached nearly 14 percent of the GDP. The Opposition has been harping on that the Government should implement fiscal consolidation measures by eliminating obstacles to attract FDIs and explore new export markets and products and encouraging technology to improve SMEs, agriculture and productivity instead of going for quick fixes to put the economy back on track. -LF