‘‘Most SME-friendly budget Sri Lanka has seen in recent times’’– Rishad

The 2012 budget is the most SME-friendly budget this country has seen in recent times. And the devaluation of the rupee will give a further boost to our export manufacturing sector, said Rishad Bathiudeen, Minister of Industry and Commerce during the debate in Parliament on Budget 2012

 “On the same day, the budget was presented, the Central Bank announced, that Sri Lanka’s GDP growth for 2012, would be around 9 percent, which I believe is a very positive sign for us.

His Excellency the President has rightly recognized the valuable contribution of the SME sector to Sri Lanka’s economy, and in bridging growth disparities across provinces. Not only does the budget propose tax holidays between 4 to 6 years for small and medium-scale new enterprises, but even a tax deduction on the initial start-up costs faced by new entrepreneurs before commencement of an enterprise. I fully endorse the proposal that SMEs with a quarterly turnover of less than Rs. 500 million to be exempt from paying Economic Service Charge up to Rs 100 million, and raising the ESC threshold from Rs25mn to Rs.50mn, which is a further raise from Rs.7.5mn implemented from the 2011 Budget” Minister Bathiudeen said.

Expressing his views on the 3% Rupee devaluation, Minister Bathiudeen said: “A key contribution of the 65th budget is the rupee devaluation which will increase our export competitiveness and drive the economy towards achieving the government’s target of US dollar 20 billion export earnings by 2020. If I may quote His Excellency the President’s own words for the reason behind this move, “As our country has experienced the strengthening of the exchange rate, in the backdrop of those countries that are competing with our country, as well as our neighboring countries have depreciated their exchange rates significantly”. Together with the wide ranging tax concessions for various private sector undertakings announced in this budget, the devaluation of the rupee will give a further boost to our export manufacturing sector. But I should stress that we should not depend only on cost competitiveness to sustain our export growth. We should also strive to build our export brand name in international markets by developing unique selling propositions. Cost competitive strategies like the latest rupee devaluation should be used as stepping stones towards ultimately gaining unique selling propositions by Sri Lankan exporters.

I am pleased to state that external trade continued to expand further, during the first 8 months of this year. The year on year earnings, from exports grew by 28.6% to US$  6.9 Billion.”

Praising the 2012 proposals for export boost, Minister Baathiudeen said: “In his speech on the Budget 2012, His Excellency Mahinda Rajapakse very rightly identified the emerging export trends for our country. I welcome the proposals which specifically mention entering into trade and investment agreements with economies in Africa, Asia and South America, which will encourage Sri Lankan exporters to explore these new emerging markets. This is a very progressive and dynamic outlook taken in this budget.”

Highlighting Sri Lanka’s export performance, Minister Bathiudeen said: “The improved export performance was driven by industrial products [35.9%] and agricultural products [13.6%]. Petroleum products [166.3%] and ships & boats [117.0%] led the industrial sector’s earnings between January - August.

Textiles and garments contributed 39.5% to the total export earnings and have increased by 27.4%.  Other top gainers in the industrial sector, are rubber finished products, food, beverages and tobacco, non-metallic mineral products, leather products and wooden products.  Textiles and garments contributed 39.5%, to the total export earnings and have increased by 27.4%, despite the withdrawal of GSP Plus facility, showing the high quality of our garment products.  Sri Lanka exports products and services of 1.7 billion euros to the EU, about 29 percent of Sri Lanka's total exports. Garments and the textile sector, take 55 percent of the value of Sri Lanka's exports to the EU, amounting to more than one billion euros. On the other hand, the US GSP programme, which came to a temporary halt at the end of 2010 due to some domestic concerns, has now been extended till the end of 2013 and the US President, was expected to sign the Reauthorisation Bill into law shortly, thereby giving additional stimulus to our export efforts.  The programme will resume zero-duty tariff concessions, to all GSP-entitled products on retrospective basis with effect from 1 January 2011. Under the GSP programme, the US extends duty free market access, for a wide range of products, imported from 131 eligible developing countries, including Sri Lanka. The value of GSP-entitled exports by Sri Lanka to the US market, continues to remain below US$ 200 million per year, while apparel products, the principal export item to the US market, fall outside the GSP benefits.”

Speaking of the need for greater access for SMEs to banking facilities, Minister Bathiudeen said: “ I stress that we need to provide our SMEs with better access to banking and finance. To this end, I appreciate the innovative proposal that the Bank of Ceylon, People’s Bank, and Regional Development Bank will each set up a special SME bank branch in all districts within 2012, and also the invitation to all other banking and financial institutions to do the same. This will be encouraged by the tax concession granted for this, of a reduced income tax rate from 28 percent to 24 percent on the interest income from such banking activities. The incentives of Rs. 300 million to Rs. 2.5 billion for large industries is especially welcome by my Ministry as it will complement our efforts in developing industrial zones across the country. I particularly welcome the proposals to develop manufacturing of pharmaceuticals in Sri Lanka as a Strategic Import Replacement Enterprise by granting tax holidays for investment in pharmaceuticals production. My Ministry has identified pharmaceuticals manufacturing as a key industrial sector in the Ministry’s 5 year plan, and I am pleased to inform you that we have already begun preliminary work on developing the country’s first pharmaceutical manufacturing zone. The Ministry of Industry and Commerce this week began mapping out the first steps in developing the 48 acre (19.4 hectare) land plot for this purpose. It is less than 5 kilometres from Kurunegala town, and is to be located at ‘Rathgalle’ Grama Niladhari Division in Kurunegala DS Division, subject to approval of the Chief Minister of the North Western Province. Upon approval from the Wayamba Provincial Council, the 48 acre state land plot identified here will be transferred to the Ministry of Industry and Commerce to start the ground work. I am happy to announce that this dedicated zone which will initially cater to the domestic market, will not only make pharmaceutical products but will also be expanded to produce medical equipment.

As Minister of Industries, I appreciate the decision to continue with the CESS on primary exports so that value-added industrial exports can be promoted, including in the tea and rubber sectors. I also extend my support to the proposal for granting incentives for joint ventures between tea producers and export companies by reducing their tax to 12 percent, so that our tea exports will be value added, and Ceylon Tea can continue to make its mark on the world stage. Also, the proposal to increase the subsidy given to tea smallholders for tea replanting from Rs. 250,000 to Rs.300,000 and for new planting from Rs. 50,000 to Rs. 150,000 is an important one. The proposal to introduce a concessionary loan scheme at 8 percent interest repayable in 7 years, to assist plantation companies to plant and re-plant is further encouragement to increase our foreign exchange earnings from export crops.”

On the proposals to advance agro crops, Minister Bathiudeen said: “The proposal to further advance export of other agriculture export crops like cinnamon, pepper and other spices is also encouraging. The proposal is to enhance the allocation made to the Export Agriculture Department by a further Rs. 150 million to provide cultivation aid to promote intercropping of cinnamon, pepper, cardamoms and cocoa. I should stress that during the pre-budget consultation held on October 21st at the Ministry of Industry and Commerce, the need to develop the Cinnamon sector was a highly discussed topic. I am proud to announce that in October this year, my Ministry, together with the EDB, was able to launch the Pure Ceylon Cinnamon brand to the international market at a global event held in Germany. In my view, the proposals made relating to the encouragement of research and development are some of the most valuable and progressive contributions of this 65th budget. The reduced tax rates for individuals and companies undertaking R&D, allowing a triple deduction for R&D undertaken by an enterprise through government research institutions, and allowing SMEs to obtain government research facilities at a nominal fee are all very important proposals that will no doubt promote the manufacturing of high quality, innovative products that can compete on the global stage.”

Discussing the rural development efforts of the government, Minister Bathiudeen said: “I should stress the various large scale projects, specially designed to uplift the socio economic conditions of Sri Lanka, especially in the rural regions. The effort to bring in the backyard household economic units, to the mainstream by supporting, and uplifting low income families through this Divi Neguma project, led by Honourable Basil Rajapaksa is a major project in this regard. According to data by Ministry of Economic Development, over 1.4 million households (called as “home economic units”) are taking part in its “Divi Neguma” programme. More than 1.3 million home garden units and 94,011 livestock farming units, are already functioning under this programme, according to the Ministry of Economic Development. Among the back-yard economic activities of Divi Neguma, are agriculture, fisheries, livestock and small family enterprises.”