National Chamber of Exporters conducts productive post-budget forum
The national budget for 2019, presented by the finance minister on March 5, is generally considered by many as progressive from an economic point of view, in spite of 2019 being an election year.
In this context, the finance minister has commendably maintained a fine balance between generating sufficient revenue to meet the crucial expenditure needs in order to focus sufficiently on the vulnerable sections of the population. This has been achieved in the overall context of consolidation of macroeconomic and fiscal parameters related to the economy, in the medium term.
Although the national budget comprehensively covers many areas of taxation and fiscal measures, the National Chamber of Exporters (NCE), which focuses on the vital exports sector related to the economy and the exporter community, has been very conscious of the impact of the proposals on the exports sector. As such, the objective of the Post-budget Forum conducted by the chamber was to keep the exporter community updated on the impacts on their export businesses.
The forum was attended by a cross section of the exporter community of the NCE membership, special invitees from the state sector and expert panellists. The main presentation analysing the budget proposals was made by KPMG Tax and Regulatory Principal Suresh Perera.
NCE President Ramya Weerakoon in her opening address welcomed the 2019 national budget, as it reflects the policy of the government to pursue an export-oriented economy by reducing the barriers to trade, both domestically and internationally, by gradually phasing out para-tariffs while improving market access for exports. These policies will reduce the cost of imports, benefiting the consumer and deepen Sri Lanka’s engagement with the world.
The NCE also commended the support extended by the budget to the National Exports Strategy (NES) and the Export Market Access Programme to increase and diversify exports, as well as the policy to upgrade the quality infrastructure to ensure the quality and standards of products imported to Sri Lanka.
The chamber also noted the focus of the budget to integrate the manufacturing activities of Sri Lanka into regional value chains and in this context, supports the moves to negotiate the free trade agreements (FTAS) with China and Thailand, among others, measures to overcome issues related to the existing FTAS with India and Singapore, as well as implementation of the proposed Economic and Technology Co-operation Agreement with India.
However, the chamber requested the government to involve the private sector effectively in the negotiating process, to make sure that the local industries are strengthened to face the new challenges.
The chamber also commended the specific measures to promote the key exports sectors such as fisheries, spices, gems and jewellery, IT/BPO and tourism, which are all potential growth sectors. However, the chamber was cognizant of the fallout of the proposed trade liberalization measures and the actions that should be taken to minimize the impact on export enterprise and employment.
Another proposal that is welcomed by the exporters is the setting up of a Trade and Productivity Commission, to formulate and implement the trade liberalization assistance packages for the various product and service sectors, to enable them to adjust during the phasing out period of para-tariffs. However, more could be done to facilitate trade through the implementation of the proposed National Single Window.
The chamber also commended Budget 2019 for recognizing the importance of increasing the female labour force in Sri Lanka, which has been decreasing in recent times and therefore, the assistance that has been proposed to provide child and elderly care facilities, as well as improvements to the inflexible labour laws to increase female labour force participation and the incentives provided to employers to provide employment to persons with disabilities, by providing a subsidy of 50 percent of the salaries payable to them.
The address by the NCE President was followed by a panel discussion moderated by NCE Secretary General Shiham Marikar, who initiated the responses of the panel to the various queries sent to the chamber by the membership.
EDB Chairperson Indira Malwatta: EDB Chairperson Indira Malwatta, as a panellist, commended the continuity of Budget 2019 by allocating more funds for implementation of the NES and the Market Access Programme, which was not the case in previous budgets, since Rs.250 million has been allocated to the NES and Rs.400 million to the Export Market Access Programme, to focus on six priority export sectors under the NES, namely IT/ BPO, wellness tourism, spices (cinnamon), food and beverages, boat building and electric and electronic products and further support to improve the quality infrastructure cuts across all product sectors.
She urged the exporters to make use of these support programmes to increase exports. In response to a query by the chamber, related to the concerns expressed by exporters regarding the low quality imports into the country, second-hand boats and electrical panel boards, which affect the development of local companies, it was stated that they could be supported under the Quality Infrastructure Improvement Programme, since it covers imports as well, by ensuring proper quality and standards for the imported products.
Vérite Research Director Research Subhashini Abeysingha: Vérite Research Director Research Subhashini Abeysingha, as a panellist, stated that Vérite Research continued to be actively involved in monitoring the implementation of the budget proposals particularly tracking the implementation of the proposals exceeding Rs.1 billion.
However, she stated that difficulties were encountered in obtaining sufficient information, particularly for expenditure heads, which involved more than one organisation in the implementation process. In this regard, the representative of the Finance Ministry stated that the work of Vérite Research to track implementation also facilitated the unit established by the Finance Ministry in its work to track the implementation of projects under various expenditure items.
Malwatta stated that the EDB had utilized the full allocation in respect of Budget 2018. However, Vérite Research had not captured it, since it has focused only on the expenditure items exceeding Rs.1 billion.
KPMG Tax and Regulatory Principal Suresh Perera: KPMG Tax and Regulatory Principal Suresh Perera, as a panellist, responded to the query of the moderator regarding the concerns expressed by the exporter community on the proposal under Budget 2018 for the requirement of export enterprises to export at least 80 percent of their turnover to enjoy the concessionary corporate tax rate of 14 percent.
In this regard, he stated that the proposal in Budget 2019 has provided some relief since the incomes arising out of investments by enterprises have been excluded from the turnover, thereby limiting the 80 percent export requirement to be applicable only to the balance of the gross turnover of an export enterprise.
Joint Apparel Association Forum Secretary General Tuli Cooray: Joint Apparel Association Forum Secretary General Tuli Cooray, as a panellist, responded to the query of the moderator requesting his views on the budget proposal, which constraints the Board of Investment (BOI) companies in the garment sector, in regard to the supply of a limited percentage of their production to the local market, by increasing the tax that is payable.
Cooray stated that this proposal has minimal impact on the sector since the vast majority of the turnover of the BOI enterprises in the garment sector was for direct exports. However, he added that the proposal will have a bearing on the ability of local consumers to enjoy the consumption of quality garment products, since they will be required to incur a higher expenditure.
Finance Ministry Advisor Deshal de Mel: Finance Ministry Advisor Deshal de Mel, as a panellist, responded to the query of the moderator regarding the concerns that have been expressed by the exporter community regarding the reluctance of banks and financial institutions to disburse loans under the various loan categories of the Enterprise Development Programme, since it is stated that the Treasury has not honoured the payments of the interest subsidy components under the various categories of loans.
De Mel stated that this had arisen only in the case of the interest subsidy payable under the senior citizens special fixed deposit scheme and will not arise in respect of the loan schemes under the Enterprise Development Programme.
Inland Revenue Department Senior Commissioner D.R.S. Hapuarachchi: Inland Revenue Department Senior Commissioner D.R.S. Hapuarachchi, one of the panellists, responding to the moderator expressed his views regarding the impact of the various taxation and fiscal proposals of the budget on the exports sector and urged the exporter community to carefully analyse the implication of each of them, to be able to benefit in an optimum manner, to develop their export businesses.
Perera, in his comprehensive presentation, dissected the various budget proposals, particularly those related to taxation and fiscal measures. He initially focused on the overall revenue proposals of the budget. In this context, he analysed in detail the implications of one of the main revenue proposals namely taxation of automobiles, since it had a bearing on the exporter community as well, which heavily depended on transportation of goods related to their export businesses.
He stated that although taxation in respect of luxury vehicles would have an impact across the board on users of automobiles, the concession provided in respect to ‘buddy trucks’ would have a positive impact on the export sector related to the transport of their goods, since it has a bearing on their cost of production.
He thereafter analysed in detail the implications of the various items related to para-tariffs such as the Nation Building Tax, Value-added Tax, Economic Service Charge, Port and Airport Levy, Cess Charges, etc. outlining how best exporters could make use of each of them related to their businesses, particularly in regard to their reduction on investments-related machinery and equipment.
He also explained the relief measures provided to the employers to make the best use of the services of female employees related to the provision of maternity leave, day care facilities, etc.