GOVT. PRESENTS ROBIN HOOD-STYLE BUDGET
Sri Lanka’s private sector appears to have been creamed off through out the budget 2015, which proposed various tax and nontax measures in order to deliver a budget with full of welfare measures and subsidies ahead of the speculated Presidential election.
Among the proposals potentially painful for the private sector were the pronouncement of a minimum wage for the private sector employees, reducing retail sector tax-free threshold applicable for Value Added Tax (VAT) and Nation Building Tax (NBT) and the increase in employer contribution to the private sector pension fund, Employees Provident Fund (EPF).
No sooner President Mahinda Rajapaksa increased state sector monthly minimum wage to Rs.15,000, he proposed to increase the private sector minimum wage to Rs.10,000 starting from January 01,2015.
Further he proposed to give at least Rs.500 salary increment for those who earn more than Rs.10,000 a month. At present there’s no minimum monthly wage in the private sector and there are over 7 million private sector employees in Sri Lanka.
The budget 2015 also proposed to reduce the tax-free threshold for VAT and NBT applicable for the retail sector to quarterly revenue of Rs. 100 million
President requested from retailers to reduce the prices of all essential goods at least by 10 percent due to low energy prices, interest rates and the reduction of VAT rate to 11 percent from 12 percent
from the earlier Rs.250 million.
The government first caught the wholesale and retail sector into the VAT net in 2013 with a quarterly revenue threshold of Rs.500 million which was brought down to Rs.250 million the following year.
“I propose to set the quarterly revenue at Rs.100 million for the retailers to be subjected to VAT and NBT,” the President said, presenting the budget yesterday.
The VAT extension to retailers has already shrunk their bottom lines. Consumers and suppliers were also hurt as retailers tend pass part of the burden to them.
Nevertheless, the budget proposed to exempt the SMEs with less than Rs.15 million annual turnovers from VAT.
President Rajapaksa also proposed to amend consumer protection laws, restricting large scale retailers from keeping no more than a 25 percent margin when selling supplies of local SME producers, to ensure fairness to them.
The proposal was made to counter efforts by organized super markets and large retailers to expand supermarket-owned brands under-cutting other suppliers’ products, which in most cases the local SMEs.
Further the President requested from retailers to reduce the prices of all essential goods at least by 10 percent due to low energy prices, interest rates and the reduction of VAT rate to 11 percent from 12 percent.
The budget 2015 proposed to extend the 25 percent electricity tariff reduction for the SMEs whose monthly usage is below 300 units and by 15 percent for other sectors – which were not defined.
Another proposal which could certainly weigh on the profitability of the entire private sector was the increase of employers’ contribution to the EPF by 2 percent to 14 percent which is currently at 12 percent. This will result in total employer employee contribution rising up to 22 percent from the current 20 percent.