Budget: Onus on taxes

(October 07, Colombo, Sri Lanka Guardian) Now that the budget date – November 22 – has been announced, Sri Lanka’s business community is waiting with bated breath for what is in store for them. The onus without a doubt appears to be on the new tax regime that the government has been planning – through the proposals of the Presidential Tax Commission – for many months now. The new tax structure was due to have been presented in the mid-2010 budget but that mini-budget didn’t have any input and the wait got longer, as investors prepared for post-war investments.

The media has often been critical of the anticipation of the private sector at a budget over tax cuts, tax holidays and any incentives that would influence investments or attract business interest. At the end of the day, as the government of the day and the nation have realised, tax breaks means less revenue to the country and over many years Sri Lanka has lost billions of rupees in tax revenue due to these tax breaks. Less revenue puts pressure on servicing the people and their needs. And given the kind of politicised environment that we live it, the little revenue that comes in often goes to political and vote-catching programmes.

On the other hand, the tax regime has also been too complicated with too many different kinds of taxes at different levels – Customs, Ports, Airports, Excise, Inland Revenue, provincial council, central government, etc, etc. In this context, change is necessary and change will happen with the budget.

Quite a few entrepeneurs are also complaining about the tax levels and the number of taxes one has to pay. “Why is there no ‘real (outside tourism and the stockmarket)’ investment despite the war being over? That’s partly to do with the high taxes one has to pay to start a business. The number of taxes is unending. Even before you start a business you have to pay taxes,” grumbled one entrepreneur.
While the ‘big’ private sector is the one that governments often listen to, it’s small businesses that fill state coffers given their bigger and wider reach in the economy. They are the silent majority that drives growth, not big business.

In this sense, the comments by corporate leader Dr Hans Wijayasuriya (see story on previous page) are important. The Dialog Chief says that while the budget should create an environment to attract foreign direct investment to make Sri Lanka a ‘port of call’ for investors and more competitive than any other competiting country in South East Asia, it is equally important that the growth that flows from this process should trickle down to the lower strata of society. “This is the real growth,” he says, adding that there should be mechanisms in place to take growth developed through large foreign investments and ensure the larger segment of the population benefits from this development.

Sri Lanka has been resilient over the past 30-odd years of the conflict and shown a reasonable rate of growth that has been an envy of the world since no other strife-torn country has seen growth of similar levels. Now translate that growth with resilience in an environment that is free of war or conflict and then its easy to surmise that Sri Lanka is heading for double digit growth particularly because the infrastructure in terms of connectivity, human resource base is intact and other needs are already there.

According to Sivakumar Ramamurthy, Managing Director - Sales and Marketing Group, Intel South Asia (during a recent meeting with the media), Sri Lanka has a lot of depth in civil society, financial markets and the social landscape. “Everything is in place to grow. There are tremendous assets to take Sri Lanka to a new level of development. There is no burden of underdevelopment,” he says, also adding “There is nothing to stop growth in Sri Lanka now.”

The creation of a new investment agency and dismantling the Board of Investment in this new era of development is a step in the right direction, as we have said in the past. Along with this is a reorganisation of the tax structure, according to Finance Ministry officials, which will pave the way for a more streamlined and people-friendly tax regime.

Officials say while tax holidays and incentives are ‘out of the window’ as these were essentially to entice investors during difficult times in Sri Lanka, benefits would accrue from the reduced number of taxes and its rationalisation.

All in all while the private sector eagerly awaits the pandora’s box of ‘taxes’ to open on budget day, equally important is for this sector and the government to ensure a process or mechanism where any benefit reaped by business will be enjoyed at the bottom of the social pyramid, as Mr Wijayasuriya has pleaded for.