Monday 13 October 2014

Private sector speaks up before Budget 2015


Private sector speaks up before Budget 2015
Published : 12:05 am  October 13, 2014
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18 business leaders share priority recommendations with Finance Ministry officials at Daily FT-Colombo Uni MBA Alumni Forum

By Shabiya Ali Ahlam

A top group of business leaders on Friday presented key insights and suggestions for Finance Ministry consideration at a unique forum organised by the Daily FT and Colombo University MBA Alumni Association.

Eighteen leaders drawn from different economic sectors and businesses shared what they view as the most critical issues that the Government must address in Budget 2015, to be presented by President Mahinda Rajapaksa on 24 October.

The annual forum with breakfast, which was held for the fourth year running and sponsored by Standard Chartered Bank, featured Finance Secretary Dr. P.B. Jayasundera as the Chief Guest along with senior officials from the Ministry of Finance including heads of Budget, Fiscal Policy, Trade and Tariff, Legal, Import Controller, Inland Revenue Department and Sri Lanka Customs.

The business leaders who spoke were John Keells Holdings Deputy Chairman Ajit Gunewardene, Brandix Lanka CEO Ashroff Omar, Aitken Spence Plc Deputy Chairman Rajan Brito, Hemas Holdings Plc Chairman Husein Esufally, Hayleys Plc Chairman Mohan Pandithage, Expolanka Holdings Plc Group MD Hanif Yusoof, Access Engineering Plc Chairman Sumal Perera, Royal Ceramics Plc Managing Director Nimal Perera, DSI Group MD Kulathunga Rajapakse, Akbar Brothers Director Azgi Akbarally, Laugfs Gas Plc Chairman W.K.H. Wegapitiya, Indian CEOs Forum Director and Lanka IOC Managing Director Subodh Dakwale, 99X Technologies Managing Director Mano Sekaram, Cornucopia Lanka Managing Director Dinesh Weerakkody, Emirates Area Manager for Sri Lanka and Maldives Chandana De Silva, Grant McCann Erickson Sri Lanka Chairperson Neela Marrikar, Lanka Confectionery Manufacturers Association Chairman 
Sylvester Perera and Hambantota District Chamber of Commerce Consultant Azmi Thassim.
Their suggestions ranged from macro as well as industry specific as they were requested to present the three most important expectations from Budget 2015 from a sector and corporate perspective.

Most of the ideas were to further the Government’s aspirations to develop Sri Lanka as a hub for commercial/tourism, maritime, aviation, energy and knowledge as well as reach the per capita goals set by 2016 and 2020.

Taxation consistency as well as reductions or reforms where needed were emphasised. Favourable taxation was suggested to help new industries as well as SMEs and support outward investments. To promote local industry, effective taxation and levies was called for as well, whilst another suggestion was favourable taxation to reduce cost of raw materials. There was also a suggestion to recognise holding company structure in taxation.

Changes to the proposed Land Bill by introducing a deemed tax on foreign acquisitions was recommended whilst another suggestion was that the BOI and listed companies should be kept out of its provisions.

Levelling the playing field in tourism by absorbing those in the informal sector into taxation, a taskforce with an action plan that will allow the industry to achieve its maximum potential was also suggested. The mandate of the taskforce must include ensuring that the uniqueness of the country is protected while achieving rapid growth. Introduction of minimum rates for peak and off peak season to keep Sri Lanka competitive was another recommendation.

In the agriculture sector, better and urgent utilisation of the tea promotion CESS fund and subsidies for replanting for tea smallholders were recommended. For the rubber sector, the need to support smallholders on replanting as well as incentivise tappers was suggested to boost production. Another was removal of the ban on plantations diversifying into palm oil.

Several local industries called for implementation of anti-dumping and counter-veiling legislation to promote local production of tiles, discouraging of loopholes for under-invoicing on imported ceramic and sanitary ware products, reforms in public sector procurement and encouraging the sourcing of locally-made products.

In the case of footwear, a more effective import levy on imports was suggested to promote local manufacturers since importers were bringing down footwear in two parts to avoid the CESS.
Encouraging the mining of clay in tanks with a better tax regime was proposed rather than discouraging this more environmentally-friendly practice.

Also suggested was a one-stop-shop to issue both investment approvals and environmental licence for new industries, for industrial zones to be equipped with waste disposal and waste water treatment facilities, a one-stop place for quarantine approvals for floriculture and extension of triple taxation relief on research and development to in-house efforts to promote new product developments.

Other proposals included removal of 10% mark-up on the CIF value of imports, thereby reducing the cost of raw material, and levelling the playing field in relation to taxation on import of cement irrespective of whether own, chartered or third party ships are used.

In the aviation sector, suggestions included a more transparent jet fuel policy and a proper open sky policy.

Under maritime and aviation, proposals called for greater public private partnerships to better leverage the logistics, aviation and maritime hub goals, faster adaption to e-documentation and extending the lower 12% corporate income tax enjoyed by shipping to the logistics industry as well. The continuity of 2014 Budget measures on Terminal Handling Charge (THC) was also suggested.
Aggressive promotion of the hub strategy and incentives provided was another key recommendation, in addition to further support for investments in ship repairs and ship building.

In the energy sector, calls were made for an automatic pricing formula for fuel to ensure long-term investment, further development and planning and favourable taxation to boost bunkering as part of maritime hub aspirations and earn higher foreign exchange.

Encouragement of greater investment by supporting development of energy infrastructure and security to serve both local and regional needs was another key suggestion.

A favourable tax rate to promote fully electric vehicles and concessions to set up solar harness electric discharging stations was also recommended.

With regard to human resources and skills development, a fresh round of labour laws and education sector reforms and setting up a public-private skills development council like in Singapore bringing all skills and training infrastructure

under one entity to ensure alignment with country’s development goals as well as restructuring the Skills Development Fund to better cater to demands of new sectors such as apparel, financial services, retail, BPO, etc. were proposed,

while another suggestion was effective measures and incentives to draw back skilled and professional Sri Lankan talent currently abroad, in addition to support for automation given the shortage of labour.
In the marketing arena, favourable taxation to stimulate the advertising industry and the development of local brands were suggested. Another recommendation was better country marketing and branding globally, given the considerable

post-war development. Avoidance of excessive legislation that adds cost to FMCG business with the safety sticker issue was cited as an example.

In the financial services sector, a key suggestion was encouraging banks to focus on the housing mortgage market, with the twin objective of encouraging long-term lending and housing for all policies of the Government with multiplier effects on several other sectors. Further support to develop long term savings/pension products was also highlighted.

In the IT/BPO sector, support to promote venture capital and foster start-ups with private-public partnerships, incentivise development of industry-ready human resource for the IT/BPO sector and further support to fully harness the knowledge hub aspirations of the Government were among the suggestions shared.

At provincial level, proposals revolved around higher investments in education, health, training and tertiary education as well tourism infrastructure, support for SMEs, favourable taxation, extension of lower interest rate currently given to livelihood projects to women entrepreneurs and tax relief for district chambers of commerce to support entrepreneurship.

Dr. Jayasundera, in his response, welcomed business leaders’ suggestions and said new ones would be considered as some were already being implemented. He was also happy that the list of private sector recommendations wasn’t long as last year.

He said that in an era of greater free trade globally and with the country forging new free trade deals with China and Japan in addition to existing ones with India and Pakistan, restrictions on imports as well as protectionist measures would be challenging. “Somebody’s input is another’s output,” he added.

It was emphasised that local producers need to focus on improving efficiencies and productivity as well as branding.

The Finance Secretary also warned that labour would continue to be expensive and lacking as the country’s economy moves up in the prosperity and development scale, apart from greater mobility and wider choices.

It was also emphasised that tax revenue was critical as the country is seeing rapid infrastructure development, which is key. He also said the Government’s move towards lower fiscal deficit was a bigger benefit for the private sector along with sound macro fundamentals.

The need for private sector to consolidate itself, partner where necessary as well as work in collaboration with the Government was emphasised as well.

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