FCCISL welcomes ‘Development oriented Budget 2011’

Friday, 26 November 2010 00:12 -     - {{hitsCtrl.values.hits}}

The Federation of Chambers of Commerce and Industry Sri Lanka (FCCISL) said it recognises and acknowledges that the preparation of the Annual Appropriation Bill and Budget proposals to meet competing priorities of consumer welfare and long-term economic development through enhanced investment by both the public and private sector and setting a conducive and enabling business environment to resurge the economy is an extremely difficult public finance management exercise.

This has become an even more difficult task under the prevailing difficult world economic scenario and limited space for enhancing domestic revenue and the challenges of effectively meeting the unavoidable recurrent expenditure. It is in this context that the FCCISL — the apex body of regional chambers and trade associations — welcomes and appreciates development friendly fiscal policy measures and reforms presented by the government.

In a statement the FCCISL said, Budget 2011 envisages a total revenue of Rs. 986 billion (15.2% of GDP) and Rs. 1419 billion of total expenditure (22.4% of GDP) resulting in a budget deficit of Rs. 433 billion (6.8% of GDP). Maintaining a relatively low budget deficit would certainly send a positive statement of commitments and resolutions of the government for targeting strong fiscal discipline which is considered a sine-qua-non for a stable and sustainable development strategy. While appreciating this achievement, the FCCISL looks forward to maintaining and achieving the fiscal targets through an efficient administrative mechanism. In this regard, private sector business entities and individual citizenry too have a responsibility to enhance private sector investments on the priority areas recognised by the government and generating savings for further investments.

It is also noteworthy to recognise that the budget was careful not to resort to excessively inflationary financing instruments to bridge the budget deficit. While foreign financing has been kept at a lower level, domestic non-banking borrowing has been increased for financing the deficit.

The FCCISL particularly welcomes relief measures provided to SME sector which was adversely affected in the recent past. The proposal on mobilisation of Rs. 5000 million from the World Bank to restructure and optimise SME businesses, proposal to write off unpaid tax liabilities up to March 2009 of all enterprises with a turn over below Rs. 100 million, exemption of SME operation from the Economic Services Charge, and offering of concessionary income tax rate of 10% are certainly correct policy prescription for the embittered SME sector in the country. The proposal to procure domestically produced products such as thriposha, surgical gauze, selected pharmaceutical products, school text books, uniforms and furniture on priority basis are also welcome. However, we would also urge the policy makers to include the SME services sector such as construction and engineering services to be given priority in the government procurement process.

The reforms proposed in the tax structure are another salutary development. Corporate income tax and tax rates on personal income have been reduced with a view to generate more investments and savings. Lower income tax of 10% is proposed for industries with domestic value addition in excess of 65% and Sri Lankan brand names with patent rights reserved in Sri Lanka. Income tax for all export companies has been reduced from 15% to 12% to encourage general exports. The income tax on profits has been reduced from peak level of 35% to 28%. Reduced duties are proposed for import of machinery and equipment. Tariff and other taxes on passenger transport have been reduced by 25% to encourage the tourism sector. It is particularly pleasing to observe that the government has decided to abolish bank debit tax completely which was one of the areas where the Federation has advocated. The Federation hopes that the benefit of reduction of VAT (from 20% to 12%) on financial services and reduction of tax (from 35% to 28%) on profit in the banking sector will be passed on to customers, particularly to SMEs to enable them to raise low cost capital for investment.

The removal of provincial turn over tax is particularly beneficial to the SME sector and the consumers, as they were subjected to the multiplicity of similar taxes hitherto. The exemption of processing industries below Rs. 50 million and hotels below three-star category from NBT augers well for SMEs.

In the sphere of consumer welfare and social security, the budget has made certain proposals to provide relief measures to the general public despite the limited resources available at its disposal.

The Federation has been advocating for some time for the implementation of anti-dumping, counter-vailing legislation to protect domestic industries from import surge, subsidised imports and dumping. It is certainly encouraging to see that the budget proposals have recognised the necessity to introduce such legislation to safeguard the national economic interest.

The Federation recognises that providing an enabling macro-economic policy environment and legislation is the responsibility of policy formulators. However, it is even more important to maintain the positive momentum created in the policy statement with regular consultations with the private sector apex bodies with a view to insuring effective implementation of these proposals to the benefit of the national economy and sharing of the economic benefit by the society at large.


The Federation intends to study the proposal in-depth in consultation with all stakeholders, and make further proposals to the policy makers for effective implementation of the proposal and make improvements in due course where necessary.