Private sector's early take on 2011 Budget

Budget proposals were met with positive reactions from a range of top private sector and industry association professionals who hailed the measures set out as being encouraging to create a business enabling environment for all sectors with special reference to tourism, motor, banking and aviation industries.

By Uditha Jayasinghe, Sunimalee Dias, Cheranka Mendis  and Cassandra Mascarenhas

Premier blue chip John Keells Holdings Chairman Susantha Ratnayake described the 2011 Budget as “forward looking and less complicated” but emphasised that success in implementation will be critical.

For the Joint Apparel Association Forum (JAAF) Secretary-General Rohan Masakorala the proposals have given the opportunity for Sri Lanka to be converted into an apparel hub. He pointed out that the specific measures to quell anti-competitive behaviour was outlined in the Budget and continuing in the positive vein stressed that special enhancement for the Small and Medium Enterprises (SMEs) including “instruction of electrical approvals” was among all that they wanted.  “Industry is very happy that the Budget focused on steps that the industry has been asking for. Together with the streamlined taxes the overall prognosis is very good,” he added.     

In his turn the Bankers Association Secretary-General Upali de Silva was also enthusiastic in his commendations. “The Budget is very positive. Bankers who have suffered under high taxes are heartened by the reduction.  The chance to return to normal corporate rates as well as the reduction of debit tax would encourage more people to open more accounts. The debit tax deducted from every transaction for savings and current accounts have been removed so this will encourage people to use banks for their transactions.

Currently most people use cash and this also results in money laundering and other crimes. The effort of the government to encourage the private sector is very visible in this Budget.”

Pacific Asia Travel Association and Jetwing Hotels Chairman Hiran Cooray noted that the Budget was “excellent” and insisted that it really looked into the needs of the different industries. “When talking about the tourism sector in particular the fact that two of the real bottlenecks have been eliminated, the removal of the taxes is a huge relief for the hoteliers and the fact that overall taxes have also been reduced is also a good thing for high taxpayers.”

Corporate Personality and Economist Rohantha Athukorala said: “The budget is clearly developmental with the proposed simplified tax structure. But the challenge is the budget deficit which makes Sri Lanka fall into a catch 22 situation. For instance the interest repayment that was Rs. 71 billion in year 2000 and 8% of the current expenditure is Rs. 309 billion or 35% of the current expenditure of 2009. This needs be focused in 2011 so that it is a balanced but, on an aggressive developmental agenda. If not, it will not be responsible development.”

For Laugfs Gas Chairman W.K.H. Wegapitiya the bird’s eye view of the Budget has painted a positive panorama with considerations for the private sector taking pride of place. Speaking to the Daily FT he insisted that the private sector has been strong encouraged with the changes in the tax regime and this will be a key factor in supporting growth. He stressed that the fundamental requirements for growth have been fulfilled by this Budget, at first glance.

Revved up by the tax cuts given to the motor industry the Ceylon Motor Traders Association President Thilak Gunasekera was positive of the Budget but took the path of caution by stating that he could not give specifics until the Budget had been studied in full by the members of his association. With the reduction in VAT and passenger vehicle taxes the future looked brighter for the motor trade.   

Terming the Budget as being “extremely good” the City Hotels Association President M. Shantikumar pointed out that the proposals would have an over-spill effect for the tourism industry. He dismissed casino and liquor taxes being increased as “small” and not likely to adversely affect the overall sector.

SriLankan Airlines CEO Manoj Gunawardena joined in with, “the budget is extremely positive with the government identifying aviation as a truly important segment of the development plan for the country. It has also identified the two national airlines as beneficiaries of tax and other relief’s so that the airlines can take on an expansion plan in the future to achieve the ‘hub’ concept put forward by the President. It is also the first time after many years that the industry has been focused on and recognised as a factor to achieve economic growth. It has been given the due priority and encouragement to further develop themselves, developing the country on the long run.”

National Chamber of Industries immediate Past Chairman Nimal Perera noted that, “I feel that the budget is very business friendly and development oriented. The addition of welfare to the budget such as the third child benefit for parents in the three forces is a positive one, one that we did not expect. This I feel shows positively as we have lost so many of them in the battle to achieve peace and by this, it would somehow compensate on the lost lives. Overall the budget is a good one and would show its true benefits in the near future with investment coming in.”

Hameedia’s Managing Director Fauzul Hameed - The budget is good overall but it is not advantageous for everyone. There is hardly any support for the local industries – there are over 5000 small local industries, nobody realises their value and it looks like they have been neglected yet again. I was expecting more from the budget this time around, for example in my industry the machinery should be made duty free in order to help us be more competitive.

 Aitken Spence Hotels Managing Director Malin Hapugoda said the new budget looked “encouraging” for those in the private sector because the taxes have been reduced in the hotels and income tax.

HNB Deputy General Manager Marketing & Retail Banking Chandula Abeywickrama observed, “I think it looks good to me.” However, he noted that taxes on international calls would prove to be bad since tariff needs to be low on such calls in moving forward; and it could have an impact on the large number of migrant workers. On the other hand the jobs for graduates was noted to be a “good initiative” and hoped it could be positive.

Lanka IOC Managing Director Suresh Kumar said that with the turnover tax has been removed and the government will fund the provincial turnover tax, which is good. I understand that for VAT on input and we can have a 100% adjustment (currently only 85% is allowed) and they are simplifying the duties tax in that sense it is good. This is a good development oriented budget, he said.

PC House Chairman/CEO S.H.M. Rishan said the budget looks great in terms of the corporate taxes and the withholding tax. In this respect it was a positive budget. He said the removal of the BTT was great as well. The 2% contribution by the private sector for employees to join a pension scheme would result in a good cadre with more interested in joining the private sector, he added.

Budget for the rich paid by the poor – Harsha

UNP MP and Consultant Economist Dr. Harsha de Silva yesterday described the Budget 2011 as benefiting the rich with nothing real for the masses.

“This is a Budget for 200 people (rich) to be paid by 20 million people,” Dr. de Silva said adding that what President Mahinda Rajapaksa presented yesterday was a continuation of the Hinsanaya and Vindanaya rather than Mahinda Chinthanaya.

“The Budget is full of tax cuts for the rich and there is nothing for the people,” he said. “If the Government can afford to cut so much of taxes then the question is why can’t wages be increased higher than what was promised.”

Dr. de Silva said that real income of the people whom President Rajapaksa is supposed to represent and serve their interest, had declined, and they deserve a raise in tandem with original promises made by the Government. He also said that the cost of living will increase with revisions in electricity tariffs etc.

He also said that despite the far reaching tax cuts, the leading indicator of investor confidence —the stock market — closed flat yesterday. “The market envisaged a dream budget; but how it closed yesterday is an indictment on the Government and its Budget 2011,” he added.

However the UNP MP and economist saw some positives in the Budget 2011. He said that the Government has endeavoured to boost private sector investments in Sri Lanka without which the country would not progress. “It must be emphasised that whilst the Government wants to increase investments it must ensure the right kind of investors come to Sri Lanka. This however depends largely on the confidence level of investors in Government policy and its consistency. In that context action matters more than mere policy pronouncements,” Dr. de Silva emphasised.

Nevertheless he was concerned over mixed signals sent by the Government with the takeover of Sri Lanka Insurance Corporation as well as buying out Shell’s stake.

He also said the export sector was disappointed by the Government’s failure to reintroduce a reward scheme.

The UNP MP is expected to make a more assessed comment on the Budget 2011 today or tomorrow.

Other UNPers said that there was no creativity or originality in the Government’s Budget 2011.

Independent analysts warned that absence of credible revenue measures exposes the viability of ambitious expenditure measures. “The Government appears to be betting on an unprecedented economic revival to boost revenue. This is highly superstitious,” they said. For example even if imports which are currently at $ 14 billion were to double, the revenue isn’t much since duties are lower. Such a growth in imports will also cause serious pressure on the reserves,” they added.

Another aspect was that though the Government can be commended for putting a cap on wages, the move is likely to be counter-productive judging by the decision to enhance recruitment to the state sector.

Whilst commending the Government for making a start in terms of initiating several reforms including contributory pension scheme for the private sector, these independent analysts urged the Government to appoint a high powered committee to regularly track the compliance of moving towards the envisaged lower Budget deficit. “If there are deviations or overruns, the President must be alerted immediately. If not the commendable move for fiscal consolidation and its benefits will be lost,” they added.