Industry expectations rise ahead of budget

Investors and stakeholders voice specific concerns

By Azhar Razak

The government’s 2011 budget, which kicked off last week with the appropriation bill (first reading) being presented in Parliament, is expected to be the first step of a three-year development plan for the country.
The budget will be vital for foreign and local investors as it might signal the government’s future policy direction being the first proper budget since the end of the war in May 2009.

In light of this development, The Bottom Line last week interviewed few industry leaders from key sectors that are presently poised for growth to express their expectations in the Budget 2011.
Here is what they had to say.

Leisure
“What we urgently need is unification in the industry’s present tax system. Right now, the industry has to pay a number of taxes to a number of authorities and we would like this addressed. What we want to do is to pay one single tax. This uniformity is long overdue and we are confident that this issue will be addressed this time around.
With the end of the war, a recovery in the tourism industry has just started and lots of hotels are looking at refurbishing their hotels to exploit the newly emerging opportunities. So at this critical juncture, I hope the Budget would not burden prospective investors with any additional taxes because it might be a heavy deterrent to the plans.
“We believe that a uniform tax if introduced for the sector should help us develop the hotels as we need to construct another 15,000 rooms to cater to the targeted 2.5 million tourists by 2016.”
Tourist Hotels Association of Sri Lanka president and Serene Pavilions chief executive and deputy chairman Anura Lokuhetty

Banking and Finance
“We are hoping that the Financial Services Value Added Tax (VAT) will either be removed or at least reduced. This has been a huge burden for all banks as it has pushed effective income tax rates of banks to around 55 percent and it is increasingly becoming unbearable.”
Sri Lanka Banks’ Association (Guarantee) Ltd secretary-general Upali de Silva

Note
Bankers have said that the effective tax rate on banks is now around 60 percent. The high taxation, while slashing capital available for banks, also brings down profits making shareholders less willing to pump in money. Currently, in addition to the standard corporate income tax of around 35 percent, banks have to pay financial value added tax, which is an effective tax on profits, though it is called a VAT.

BPO/Information Technology
“We hear that the government is contemplating on scrapping Board of Investment (BoI) and Export Development Board (EDB) concessions afforded for small investors in the BPO industry by putting in place a minimum investment threshold (shore limit) that entitles the concessions. This step, I hear is to attract only larger global BPO players to enter the market which should not be the right thinking of the government.”

“We expect the government not to introduce this as Sri Lanka currently does not have the required amount of trained labour workforce in the industry that may be required by global players. Instead, what we could do is to target smaller niche projects to be taken up.
“Now that the war is over and that we are on a clear path of an economic resurgence, we urge the authorities not to destroy this lucrative industry by introducing anything of this sort as it is only a whole new misconception.”
Sri Lanka Association of Software and Service Companies (SLASSCOM) director cum vice-chairman and Heraymila Securities chief executive Ravi Abeysuriya

Tea
“We have been told that a new fund known as ‘Tea Export Development Fund’, targeting to raise Rs1 billion each month for next five years, is to set up from next month and administered by the private sector. However, the private sector has become a little suspicious of the government’s intentions due to certain actions that were taken in the past, such as the CESS Fund and the EDRS Scheme. Therefore, we want the government to be genuine this time around and to take the private sector into confidence by empowering them.”
National Chamber of Exporters president Rohan Fernando

Apparel
“I would like the Budget 2011 to address the export competitiveness issue prevalent in the apparel sector due to the escalating costs and the strengthening of the rupee which is hurting export revenues.”
Joint Apparel Association Forum (JAAF) chairman A Sukumaran

Construction
“As far as the construction industry is concerned, we want the government to provide equal opportunities to local investors such as adequate tax incentives similar to those provided for foreign investors to facilitate more local participation in the development process.
“If you look at the construction companies listed on the CSE board, there is a large amount of money available. However, adequate incentives are not presently provided to them to facilitate participation.
“We also want the government to urgently set up an ‘Infrastructure Development Fund’ similar to what has been set up in India which can facilitate our contractors to borrow money from this Fund. A lot of contracts are presently going to either Indian or Chinese investors because they are coming here with the money funded by similar institutions set up in their respective countries such as the IDF in India or the EXIM bank in China. Therefore, setting up a similar Fund here should be a top priority for the government.

“A recent media report has also suggested that the Central Bank is considering withdrawing all incentives provided to the investors for the industry. This should not happen and in fact they (Central Bank) should consider extending these incentives for at least another two years until most of the mega projects that are vital to the economy are completed. This announcement by the CBSL is very untimely and we urge the authorities not to do this since the industry has not even take off since the end of the war.”
Chamber of Construction Industry president Surath Wickramasinghe.

The appropriation bill presented in the Sri Lankan Parliament last week showed that Rs. 215.2m or a 20 percent of the estimated Rs. 1.08 trillion 2011 budget is to be allocated for the defence sector, an increase of about six percent from the 2010 allocation. Apart from the defense budget, economic development has received the second highest allocation with an amount of Rs 75.2 bn followed by the health sector receiving Rs62.25 bn, ports and aviation Rs28.65 bn and Rs1.74 bn set aside for resettlement of the internally displaced. The Appropriation Bill is considered the first reading of the budget and sets out expenditure allocations for various Ministries and also foreign and local borrowing limits for the next year.
The budget proper with itemised expenses and measures to bridge the deficit including tax changes, which is considered the Second Reading of the Bill, is to be presented in Parliament on November 22.

http://www.thebottomline.lk/2010/10/24/biz_feature2.html

People who read this post also read :