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| Sri Lankan President Mahinda Rajapaksa reads the 2011 budget in Parliament in Colombo November 22, 2010. Sri Lanka's president proposed a 2011 budget on Monday promising a swathe of tax cuts and the lowest deficit in 19 years, aiming to quicken the pace of post-war economic revival. However, there were few specifics about how revenue would be raised in the budget, the first full-year spending plan since the country won a quarter-century war over the Tamil Tigers separatists in May 2009. |
Budget deficit in 2011 is Rs. 434 billion
The budget deficit for next year will amount to Rs. 434 billion which is 6.8 percent of the
GDP in 2011, said president Mahinda Rajapaksa presenting budget 2011 in Parliament today.
According to the president, the total revenue in 2011 is projected at Rs. 963 billion, while recurrent expenditure is likely to be Rs.1,017 billion.
Following is the full text of president Mahinda Rajapaksa's budget speech 2011:
1. Hon. Speaker, as you chair the proceedings of this august assembly, the image of my father late Mr. D A Rajapaksa who occupied your seat once as the Deputy Speaker comes into my mind. I recall him crossing over to the opposition with late Mr. S W R D Bandaranaike and several others to give a leadership to transform Sri Lanka to be a truly independent and prosperous country in Asia. It was a transformation based
on our national heritage, culture, value system and our own identity. That mission was not accomplished.
2. Having ended the 26 year old conflict and implemented a major country-wide
development program since 2006, I sought a fresh mandate from the people prior to
ending the first term of my office. I presented “Mahinda Chintana –Vision for the
Future” at the 2010 Presidential Election. When introducing it to the people, I
reminded that in my first term of office I won them the peace that they were
yearning for. I also assured my deepest commitment to fulfill their future
aspirations. I was elected with a majority of 1.84 million votes. This was a stronger
mandate than the majority of 180,786 votes that I received at the 2005 Presidential
Election. At the subsequent Parliamentary Elections, the United People Freedom
Alliance led by me won 144 seats out of the 225 member Parliament. Today the
Government commands a 2/3 majority in this Parliament.
3. Hon. Speaker, people have placed their confidence in us to lead our beloved
motherland to a brighter future. They want a decent living, a clean environment
and a better life for their children. I remain firmly committed to give an
uncompromising leadership to fulfill their aspirations. It is with that commitment I
rise here today to present the 2011 Budget. I am also humbly proud as the Minister
of Finance and Planning for being able to reduce poverty to 7.6 percent during last
5 years while taking our country forward as an emerging economy in Asia.
Background
4. Hon. Speaker, at the time I took office as President, there was no stability in the
country. I did not have even a majority in Parliament. Challenges were many. The
country was in the midst of a prolonged conflict and on the verge of being a divided.
The country was overshadowed by separatism, terrorism, communalism and
external interferences. The popular view was that LTTE was an unbeatable force.
Even confronting the LTTE was considered a grave mistake. The country had been
shattered by the 2004 Tsunami. Our environment had been destroyed over many
years. Forest cover had been reduced. Above all, I inherited a large budget deficit
that had prevailed even much longer than the LTTE terrorism. There was no fiscal
space. Funds required even to protect the sovereign state from terrorists were not
available. Neo-liberal policies had taken deep roots. Hence home grown solutions,
local competencies and capabilities were considered inferior. The sale of state assets,
pruning capital spending and subsidies to the poor, granting lucrative tax amenities
etc. were regular policy prescriptions. The outcome was, the country being without
a clear direction.
5. Hon. Speaker, Hon. Members, this legacy is now history. The war has ended and the
country is unified. No room can be left for separatism and terrorism again. We have
entered in to a new phase to emerge as a strong middle income economy by 2016
while rebuilding damaged areas as rapidly as possible. We all know that the brave
men and women in our security forces, paved way for this journey forward. Many
of our soldiers lost their lives. Some were injured and disabled. It is our duty to look
after their long term welfare. Therefore Hon. Speaker, I propose at the very outset to
allocate Rs. 3,000 million over a period of 3 years to address economic difficulties of
service men and women who have suffered as well as their families. I also propose
to grant an allowance of Rs. 100,000 per family for a live birth of a third child of
families of armed force personnel, to promote their family environment.
Development Approach
6. Unlike past Governments, we did not forget the economy while fighting the war.
With the victory in 2006 we immediately embarked on a massive infrastructure
development drive. We have created adequate capacity in power generation and
port services. The entire nation must have access to electricity and global trade. We
expanded public investments in building roads and bridges island wide. The construction of Moragahakanda, Uma Oya and Deduru Oya irrigation schemes together with the rehabilitation of 32 major irrigation systems and reservoirs have been undertaken. Government expenditure has also been diverted to expand the availability of drinking water at both national and community level to ensure that people will have access to quality drinking water. Investments in education and health to modernize school facilities and universities as well as hospital facilities have also been our priority. All of us now witness the massive development activities taking place in our country.
7. Hon. Speaker, empowering the village is our central theme in development. In this
endeavour we focus on rural development initiatives to ensure that people in every
village will have access to electricity, a road network, drinking water,
telecommunication facilities, market places and townships. Above all they must have
food and energy security and a green environment to live in. “Gama Neguma”
program has completed 72,105 small projects at a cost of Rs. Rs. 27,888 million
during 2006-2010. These projects have benefited 11.9 million people up to now.
The rural centric initiatives have enabled community participation in a big way.
Credible expectations have therefore been created that every single village will be
developed through “Gama Neguma”. No village in Sri Lanka will be left out of this
massive development drive during the next 3 years. We implemented “Mathata
Thitha” a special initiative to liberate our people from the use of illicit liquor and
narcotics. Smoking has declined by 18 percent over the last 4 years. A survey
conducted by the Colombo University, reveals that the consumption of illicit liquor
is also on the decline.
8. I undertook a Pre Budget Review of all 25 districts and provincial level work. I wish
to share some evidence of progress. Sri Lanka’s poverty which was 15.2 percent in
2006 has declined to 7.6 percent in 2010. Most important development is that
poverty in rural areas has declined from 15.7 percent to 7.6 percent while in the
estate areas, it has declined from 32 percent to 9.2 percent. We will direct our
strategies to reduce poverty below 5 percent within the next 5 years.
9. Let me show you how this progress has been achieved. Access to electricity in the
rural sector has increased from 78.5 percent in 2006 to 83.2 percent in 2009,
while it has raised from 62.3 percent to 84 percent in the estate sector. Access to
safe drinking water has increased from 84 percent to 87 percent countrywide,
while in the estate sector, it has increased from 46 percent to 65 percent. In 2006,
only 98 percent of the children in urban and rural areas attended school. It has
increased to almost 100 percent in 2009. Estates sector school attendance has
increased from 92 percent in 2006 to 97.4 percent in 2009. Hon. Speaker, let me
assure this Parliament that we will place Sri Lanka as the leading nation in
achieving the Millennium Development Goals.
10. All island unemployment which was 7.2 percent in 2005 has dropped to 5.8
percent by 2009. In addition, earnings of our farmers and the labour force have
increased. In 2005, farmers could not secure even Rs.10 for a kilo of paddy they
produced. We managed to maintain it in the range of Rs. 24 – 28 per kilo. Higher
producer prices also prevail for several other crops such as maize, onion, potatoes,
and soya beans. We give fertilizer at Rs. 350 per 50kg bag to paddy farmers. Dairy
farmers who were receiving Rs. 18 per liter of fresh milk now receive Rs. 44 per
liter. Tea, rubber and spice growers have been able to attract remunerative prices.
Daily wages of our working people in agriculture, industry and services have also
increased by 100 percent between 2005 and 2009. So, Hon. Speaker, our economic
program has given them widespread benefits regardless of whether they live in the
urban, rural or estate areas.
11. Hon. Speaker, even in the liberated areas, the progress we have achieved since the
date of liberation is remarkable. The Government has been able to resettle 263,000
people. Only 15,000 people remain to be resettled. A vast area of farm lands, public
places, and residential areas have been demined. Provision of electricity, irrigation
facilities, construction of roads and bridges, restoration of schools, health facilities
and other public places have turned the Northern and the Eastern provinces to
normalcy. The economic connectivity established through these initiatives also aims
at connecting hearts and minds of our multi ethnic and multi cultural society. The
Government has implemented a US$ 2 billion reconstruction program in the North.
These major reconstruction activities are expected to be completed by 2012.
12. Due credit must be given to our public servants and Security forces who
spearheaded such peace and development initiatives. I believe that public sector has
a special role to play. As we all know, there was a period within which the public
sector was marginalized. During the last 5 years our Government reversed this
trend. Public servants have been increased to 1.3 million. Wage increases have been
given to all categories of employees and many of their grievances have been
resolved. They are also given a Cost-of-Living allowance and housing and other
loans at subsidized interest rates.
13. In 2006 I introduced a contributory medical scheme to provide relief to public
servants. I propose to extend these insurance benefits to pensioners. Therefore, I
propose the National Insurance Trust Fund to upgrade and maintain selected wards
in national and district hospitals, dedicated for public servants and pensioners. Such
hospitals can recover the expenses of medicine and surgeries under this scheme.
National Insurance Trust Fund will allocate Rs. 1,000 million to upgrade and
maintain such facilities in key hospitals. I expect this proposal to provide
considerable relief to nearly 450,000 pensioners and 1.3 million public servants.
The Way Forward
14. Hon. Speaker, our economy took over 25 years from 1977 to 2004 to increase the
per capita income from US$ 300 to US$ 1,000. But we took only 5 years to double
the per capita income despite several adversities. The per capita income this year is
expected to be around US$ 2,375 in comparison to US$ 1,000, five years ago. While
consolidating as a middle income country within the overall “Mahinda Chintana”
Policy Framework, we have been able to correct several ill conceived economic
ideologies and strategies to make development an inclusive and a beneficial process
to the ordinary people. We have been able to bring back several assets such as
Telecom, SriLankan, Insurance and Gas to public ownership for the greater benefit
of the people.
15. Having ended the war, and with vital infrastructure in place, we are now in a better
position to engage in an accelerated development process within the next 6 years.
Liberation of the Eastern and Northern districts from terrorists has enabled us to use
massive areas of land and sea for development. Our country has now become a safe
and preferred destination for tourism. Our country is ranked first in the world in
the health and survival indicators, sixth in the political empowerment indicators
and among the top 20 in the world in gender equality indicators as well as a
location attractive for outsourcing. Our performance in education and health is
above average.
16. These are added strengths and potentials that must be fully exploited to ensure that
the 26 year suffering will never be repeated in this land. What we now need is to
devolve development rapidly to the provinces and our villages equitably. That is also
the thrust of a political solution. The global economy is slowly recovering with a
growth rate of around 5 percent. More encouragingly India, China, and all other
major countries in Asia are providing a major impetus for regional and global
growth that is beneficial for us. This is why Mr. Speaker, in “Mahinda Chintana -
Vision for the Future” we projected Sri Lanka as a dynamic global hub. Taking
advantage of Sri Lanka’s strategic location, our next massive leap forward is to
develop our motherland as a navel, aviation, commercial, energy and knowledge
hub being a key link between the east and the west.
17. “Mahinda Chintana - Vision for the Future” targets a per capita income in excess of
US$ 4,000 by 2016. A high per capita economy will help us to regain many
opportunities we have lost during the last 26 years. This will provide a better life for
the present and future generations. We have targeted to increase private
investments from both foreign and domestic sources from the present level of 19-21
percent of GDP to a range of 26 -28 percent over the next 6 years. This together
with public investment of around 6-7 percent, our total investment can be raised
from around 25-27 percent to 32 - 35 percent of GDP, to support the targeted
economic growth in excess of 8 percent in the medium term and 10 percent
thereafter.
The Tax Structure for a Value Added Economy
18. Hon. Speaker, in support of this overall vision, I intend to revamp our entire
taxation strategy. The findings of the Presidential Commission of Taxation provided
some valuable ideas. We all agree that our tax system is complex, tax rates are too
high and taxation is narrowly based. I propose to make some drastic changes. Let
me focus on the import and export of goods and services which was about US$ 21
billion or about 50 percent of GDP in 2009. The export-import economy is strategic
for our growth. A remarkable progress has been achieved in diversifying export
products and their markets. However, most exports of tea, garments, leather,
rubber, gem and jewellery products, several valuable spices as well as many raw
materials are without sufficient value addition. Our manufactured products can be
promoted through branding and better marketing efforts. The export potential of
value added, branded exports has been estimated in excess of US$ 5 billion over the
medium term. We still rely heavily on the importation of pharmaceuticals, wheat
flour, food grains and energy sources. Space for import substitution in these areas is
well in excess of US$ 2 billion.
19. Our production drive in this decade should aim at expanding exports and replacing
imports. Our international trade strategy must aim at phasing out the trade deficit.
Therefore, we need to be more productive and competitive in export and import
activities. In this context, I propose the following. First, I propose to impose a CESS
on all exports in raw and semi processed form to encourage value added exports
from Sri Lanka. Exports of finished goods will only be free from such CESS. Second, I
propose to reduce duties and taxes on machinery, equipment and raw material to
enable our enterprises to have affordable access to world class technology. Third, I
propose to lower income tax from 15 percent to 10 percent for industries with
domestic value addition in excess of 65 percent and Sri Lankan brand names with
patent rights reserved in Sri Lanka. Fourth, income tax of all export companies will
be reduced from 15 percent to 12 percent to encourage general exports. Fifth, in
order to promote domestic manufacturing enterprises to increase their production, I
propose to reduce income tax on profits from 35 percent to 28 percent. Hon.
Speaker, I hope these drastic reductions of taxes will promote our export- import
economy to increase its contribution from 50 percent to 60 percent during this
decade.
20. Hon. Speaker, Sri Lanka has immense prospects in generating income and
employment from tourism. Tourism should be a billion dollar business. Although
tourist arrivals have picked up and expected to be around 600,000 this year,
earnings from tourism shows only a moderate increase. This is largely because the
industry as a whole is underpriced. Therefore, I propose to impose a levy of US$ 20
per bed on all five star hotels which charge a room rate that is less than US$ 125 per
night from January 2011 in order to compel all hotels to charge better rates.
21. We must get ready to facilitate 2.5 million high spending tourists by 2016. Tourists
must see our richness and diversity. Over the next few years the capacity of this
industry need to be tripled from the current level of around 15,000 rooms. Since
our country is emerging as a middle income country, local tourism itself is expected
to increase significantly. In this investment drive we must link with domestic
construction companies and architects and other professionals. I also propose to
refurbish all rest houses and Government circuit bungalows in support of local
tourism. The tourist industry must use our local agriculture and industries in its
expansion strategy for greater benefits to the local economy. Therefore, I propose to
reduce tax on income earnings from tourism and related business from 15 percent
to 12 percent. I also propose to reduce duties and taxes on passenger transportation
vehicles by 25 percent. I propose to exempt the importation of electric and highbred
vehicles from Excise Tax and VAT in order to promote environmental friendly
tourism. Custom duties and VAT on various machinery and equipment which are
not available here will also be reduced to facilitate refurbishment and expansion. I
have already reduced excessive taxes on branded consumer durable to popularize
domestic shopping for tourists and local consumers.
22. Hon. Speaker, We must make our banking and financial institutions to make a
greater contribution to our development efforts. We will continue to engage in our
efforts to maintain low interest rates. We will promote our people to get closer to
banking and financial institutions. Therefore, I propose to abolish the bank debit tax
so that withdrawals from banks will not be liable for any tax. I also propose to
reduce VAT on financial services from 20 percent to 12 percent. Further, I propose
to reduce tax on profits of banking and financial institutions, from 35 percent to 28
percent. This will apply uniformly to all off-shore and domestic banks as well as to
finance companies, leasing, insurance and other specialized banking and financial
services.
23. I also propose that all banking and financial institutions will be required to register
separate Investment Fund Accounts with the Central Bank to transfer all tax savings
arising from these proposals. The Central Bank and the Department of Inland
Revenue will issue specific Regulations requiring banks to adopt low interest rates
and longer term maturity for lending these funds since tax savings must be used
more productively in our economy. Hon. Speaker, I also propose to appoint a
Presidential Commission on Banking and Financial Services to examine the changes
required to develop the sectors further in the context of emerging economy status
and towards transforming Sri Lanka as a regional financial hub.
24. Hon. Speaker, in order to increase the market capitalization from Rs. 2 trillion to Rs.
3 trillion, we need to encourage listing of new companies and debt instruments.
Therefore, I propose to recognize expenditure in relation to such activities as a
deductible expenditure for tax purposes subject to a 1 percent of the value of the
IPO. As there is no capital gains tax in our country, I propose to increase the Share
Transaction Levy from 0.2 percent to 0.3 percent. Withholding tax on corporate
debt securities will be treated on par with government securities. I also propose to
exempt re-insurance commissions and claims from VAT to reduce the transaction
cost of insurance. In order to promote unit trusts to mobilize savings, I propose to
exempt them from the Economic Service Charge. Exchange control restrictions on
foreigners and foreign funds investing in unit trusts will also be exempted. I also
propose to exempt income derived by unit trusts from investments in listed
debentures and equity, from income tax.
25. Sri Lanka is fast emerging as a niche global destination attracting outsourcing of IT
and BPO services. It has become the fifth largest exporter. At present, the country is
ranked seventh among the 50 best emerging global cities that attract outsourcing.
More and more e-governance applications are now in the pipeline to serve people
and businesses. The Government has launched various programs to increase ICT
literacy to 75 percent by 2016. A widespread tele-center network consisting of
Nanasalas, Vidhatha centers and school PC labs, has been established. Universities
and vocational training institutions have been geared towards popularizing ICT
education. I propose to establish a knowledge city in each province linked to
university townships. I also propose to intensify the tax incentives already available
for IT/BPO businesses. I further propose to remove VAT and Nation Building Tax on
software. Our aim is to make this industry a US$ 2 billion export activity by 2016.
26. Hon. Speaker, the Telecommunications industry is the backbone of modern
economies. The tax applicable to this sector is complex. Therefore, I propose to
combine all such taxes and impose a Telecommunications Levy of 20 percent. In
place of licence fees and CESS imposed by the Telecommunication Regulatory
Commission, I propose a 2 percent licence fee on gross revenue. As the industry
depends heavily on high-tech equipment and machinery, I also propose to exempt
those items from duties and VAT at the point of Customs. I propose a levy of Rs. 2
per minute for outgoing International calls. I also propose to reduce the minimum
floor rate for local calls from Rs. 2 per minute to Rs. 1.50 per minute from July
2011 for the benefit of consumers. I have requested the Telecommunication
Regulatory Commission to regulate the broadband costs in order to increase
broadband penetration.
27. Various incentives introduced during last 5 years to promote the gem and jewellery
industry have worked effectively. Its foreign exchange earnings have increased to
about US$ 400 million from US$ 200 million in 2005. This industry has the
potential to double its foreign exchange earnings by 2015. Therefore, as a further
incentive, I propose to increase the foreign exchange allowances granted to import
raw gem stone from US$ 10,000 to US$ 50,000 per person. A simplified procedure
will be introduced jointly by the Customs, Exchange Control and Export and Import
Control Departments to facilitate importation of gems to the country for processing
and value addition. I also propose to remove all taxes on raw gem stones at the point
of import. The Geological and Mines Bureau will undertake a national survey to
assess country’s gemming resources and to work out a long term strategy relating to
gem mining in Sri Lanka.
28. Sri Lanka’s export industry is often hampered by anti competitive practices of
shipping lines. As a result, Sri Lankan exporters are often subject to various charges
imposed by shipping lines. Most of these collections from FOB exporters are not
legally backed by international shipping rules. These charges not only result in anti
competitive practices but also cause a serious drain of foreign exchange and tax
evasions. These charges are also imposed on imports. Consequently Sri Lanka’s trade
oriented SME centric economy is in a disadvantage position. Therefore, I propose to
introduce a new legislation within first 100 days of 2011, towards countering anti
competitive practices in shipping and trade.
29. Sri Lanka’s Apparel industry continues to manufacture world renowned quality
apparels for global brands. It has always adhered to ethical practices and
environment standards. The industry has a huge potential to become a US$ 5 billion
industry. Towards this, further facilities will be arranged to promote entrepot trade
involving imports, processing and re-exports as well as transshipment business in
apparel clothing. Incentives have been given to promote textile, apparel and leather
product related high value added activities. As such, machinery and equipment to
manufacture textile, leather, footwear and bags will be exempted from import duties
and VAT. The Government also plans to attract leading buyers to establish their
headquarters in Sri Lanka for management, finance, supply chain and billing
operations. I also propose to exempt foreign exchange earnings from such activities
from income taxes. In order to promote these activities the exchange control
requirements and Custom procedures will be simplified.
A Productive Economy
30. Hon. Speaker, our key goal in this decade of development is to improve our
productivity by 5-6 percent per annum. This will require skills development,
enterprise restructuring, improved access to financing, simplified taxation and
access to technology. Therefore, I propose several measures. First, the Government
will commit its own resources through the Ministry of Youth Affairs and Skills
Development to train 300,000 youths in a wide range of new skills. Out of a 3 year
commitment of Rs. 16 billion, an allocation of Rs. 5 billion is provided in this Budget
for investment in skills development. Second, all SMEs and underperforming
business activities, will be assisted to restructure to optimize their businesses. The
Government has mobilized Rs. 5,000 million from the World Bank for this. Third, I
propose to write off unpaid tax liabilities up to March 2009 of all enterprises with a
turnover below Rs. 100 million since our SMEs have functioned under high interest
rates and a very unfavourable conflict environment during the past 26 years.
Fourth, as most SMEs operate on sub contracting arrangements, I propose to exempt
them from the Economic Service Charge from 1st January 2011. Fifth, I propose to
offer a concessionary income tax rate of 10 percent for SMEs.
31. Domestic economy particularly the SME sector can get a meaningful stimulus from
Government programs such as Thriposha, surgical gauze, selected pharmaceutical
products, school text books, uniforms, furniture etc. which are produced locally.
The Government procurement expenditure on account of these items exceeds Rs. 10
billion annually. Therefore, the relevant line ministries and Provincial Councils must
promote local suppliers to ensure the timely availability of such products in the
domestic economy.
32. Hon. Speaker, in our effort to push the economy towards high value activities, our
enterprises must re-engineer their work processes and invest in new skills and
innovations. Towards this, I propose to encourage enterprises to undertake Research
and Development, registration of patent, trademarks and designs, automation
through technology and training of their work force. Such enterprises are
encouraged to get assistance from universities, research and technology institutions
and skills development agencies. Therefore, I propose to give a 200 percent
deduction of expenditure incurred on such activities to enterprises.
33. The productivity of our workforce is adversely weakened by alcoholism. We must
ensure that our society will not be a victim of crimes, drugs, illicit activities, money
laundering, and financial frauds. Our academia, clergy, civil society and above all,
teachers and parents must participate in family and community based activities to
rescue our younger generation from this menace. Therefore, I propose to allocate a
sum of Rs. 200 million to implement “Mathata Thitha” initiative aggressively in
every single village and township as a national priority. Hon. Speaker, the
Government will also use taxation measures and other regulatory arrangements to
discourage the consumption of liquor and cigarettes. Therefore, excise tax on
cigarettes and liquor has been already increased. I also propose to increase tax on
profits of businesses engaged in the manufacture and distribution of liquor,
cigarettes, and casinos from 35 percent to 40 percent.
34. Hon Speaker, Our national research and development expenditure by both the
public and private sectors must increase to at least 2 percent of GDP during this
decade. In this Budget, the total funds allocated to public sector research institutions
for mission oriented researches, amount to about 0.5 percent of GDP. Further, the
double deduction for a wide range of R&D and related expenditure is expected to
raise private sector R&D expenditure also to 0.5 percent of GDP. As the public sector
commands a good resources pool and the private sector commands the capacity of
commercial applications, I encourage partnerships between Government and
private sector research centers and universities to undertake joint R&D initiatives for
high productive economic activities. I propose to relax administrative procedures
obstructing the two sectors to work together. I also propose to allocate Rs 1,000
million to set up an Innovation and Technology Development Fund to finance high
quality research and innovations.
Human Resources
35. Hon. Speaker, capital expenditure of Rs. 54 billion is provided for education and
health. This is in addition to Rs. 152 billion of recurrent expenditure on these two
services. Therefore, the total expenditure on human resource development is in
excess of Rs. 200 billion. This reflects our commitment to position our motherland
as a knowledge economy and a healthy society. The inequitable distribution of the
school network has resulted in the closure of certain rural schools while creating
overcrowded urban schools. Therefore, I propose to develop 1,000 well equipped
secondary schools throughout the island over a period of 5 years. Each secondary
school will be linked to a number of primary schools. Required funding of Rs. 15
billion has been mobilized from the World Bank and the Asian Development Bank.
“English as a Life Skill” initiative that was commenced in 2009 will be formally
expanded in 2011 by the Ministry of Education. For this, I propose an allocation of
RS. 750 million in 2011.
36. Hon. Speaker, I propose to launch a “Trilingual Sri Lanka” initiative in 2011 under
a ten year action plan. This plan is designed to ensure the rights of every citizen to
liaise with any government institution in Sinhala, Tamil or English. It will evolve an
integrated society with a skilled workforce that is capable of employment of any part
of Sri Lanka. This plan will be implemented together with ministries of National
Languages and Social Integration, Education, Higher Education, Public
Administration and Provincial Councils. I propose to allocate Rs. 100 million in
2011 to support programs under the relevant line ministries for this “Trilingual Sri
Lanka” initiative.
37. Hon. Speaker, our 17 universities are at various stages of development. While many
of our state universities have acceptable facilities, the recently established
universities need considerable investments to be upgraded. Therefore, I propose a 3
year development initiative with Rs. 3,000 million from 2011 for all those state
universities to project with a unique core identity for each university. This
accelerated development program will also aim at developing university townships
with required facilities such as transportation, accommodation and recreation. I also
propose to grant a further Rs. 600 million to transform Peradeniya, Moratuwa,
Colombo, Sri Jayawardanapura, Kelaniya and Ruhuna universities to become world
class universities in their chosen fields. I also propose to introduce a Presidential
Awards System to our national universities to be assessed based on their academic
and research performances. Our university intake is only 22,000 out of about
50,000 eligible for higher education. That is also after the Government having spent
about Rs. 20 billion in higher education annually. This is why we need more
investments in higher education. Therefore, universities and higher education
institutions must be regulated within a sound legal framework and under a strict
supervisory mechanism. We cannot permit ‘ educational shops’ to operate under the
guise of educational institutions and universities. We need quality education. Our
objective is to move away from profit orientation and maintain high standards for
higher education We all must guarantee that no one is left out when it comes to
education. Let us not forget that education is the future of our children.
38. Demographic transitions with the increased share of elderly population and the
surge in non communicable diseases have brought up new challenges to our health
system. A 3 year action plan targeting the control of non communicable diseases
will be implemented from 2011 through improvements in the primary healthcare
system. I propose an additional allocation of Rs 900 million for this proposal. I
propose to exempt the import of pharmaceutical products from Port and Airport
Levy to reduce the cost of medicine. I also propose to exempt high tech medical and
laboratory equipment from import duties and VAT to promote investments in health
services.
Port and Aviation Hub
39. Hon. Speaker, we propose to transform Sri Lanka as a strategically important
economic center in the world. As our port sector is emerging with large
international port facilities investment in industrial zones and port related services
will be encouraged. A port city development initiative in Magam Ruhunupura will
be implemented under strategic investment. In the aviation sector, we encourage
Maintenance, Repairs and Overhauling (MRO) businesses and cargo operations for
joint ventures. A Graduates School of Aviation will be promoted to train pilots and
other aviation professionals. Increased frequencies will be granted to international
airlines to promote Sri Lanka as a popular destination. New regulatory
arrangements have placed us high in international regulatory standards. SriLankan
Airline and Mihin Lanka will be expanded with new aircrafts to increase the fleet to
30 by 2012. I propose to exempt SriLankan and Mihin Lanka from all taxes for a
period of 10 years to strengthen the two enterprises.
Investment Climate
40. Hon. Speaker, we need to reformulate our strategies and the institutional
mechanism to improve our investment climate. In the past, all what successive
governments have done in this regard, is offering costly tax concessions, cheap
labour and our valuable assets free of charge. A skilled labour force, political
stability, a low tax regime and efficient government institutions to facilitate
investment must be the basis of our investment promotion strategy. Therefore, the
Board of Investment (BOI) will be required to focus on 3 core activities. First, is to
manage Export Processing Zones efficiently. Investment will be attracted to fill
vacant positions in all 12 zones. Second, to concentrate on promoting quality
investment from abroad. Such investment must add value to our economy. They
must be environment friendly and socially responsible. Large investment will be
promoted under the strategic investment law and income tax laws. I propose to
revise BOI Regulations to offer its incentives to carefully targeted priority sectors.
Third, is to devote time for monitoring and follow-up. Further, despite having been
approved, since many BOI investments are non-performing, I propose to cancel
forthwith, all BOI approvals granted before 30th June 2010, if such investment has
not commenced or has remained closed as of today. Those who have not
commenced work but wish to proceed must obtain fresh approvals. The BOI law
will be amended to create a position for a Director General to ensure continuity in
executive responsibilities.
41. The separation of the former Sri Lanka Tourist Board into four agencies has not
served the intended purpose. I propose to merge all agencies except the Hotel School
as a single agency capable of effectively promoting tourism. New legislation will be
introduced to enable this in the first 100 days of 2011.
42. Hon Speaker, approval procedure of Urban Development Authority with regard to
housing and property development is very complex and time consuming. The
operation of multiple administrative systems by local authorities, provincial
councils, line ministries and such other agencies have caused further complexities. I
propose to appoint a full time Cabinet Sub Committee to review all such
administrative procedures and regulations and to simplify them within 6 months. I
have also directed the Treasury to review all fees and levies being charged by
various agencies and to simplify them within the first 100 days of 2011.
43. Information and Communication Technology Agency of Sri Lanka (ICTA) has
initiated several electronic processing systems. Several departments have already
adopted such systems. All government agencies will adopt an electronic approval
procedure in 2011. The E-governance project will enable all regulatory agencies to
link with each other to share information. The Financial Regulations have also been
amended to authorize all government agencies to accept credit cards, to pay for
government services. The Department of Immigration and Emigration will use an
electronic approval system to grant visas and monitor visa regulations. Government
has already initiated action to transform the Department of Customs and the Board
of Investments to provide required facilities in trade documentation through an
electronic data processing documentation procedure. A 3 year Fiscal Efficiency
Management Program has been undertaken to introduce a technology based tax
administration within the next 3 years.
44. Hon. Speaker, foreign offices maintained by the Foreign Employment Bureau, the
Tea Board, Department of Commerce, and other agencies will be brought directly
under the supervision of the Sri Lankan Embassies abroad so as to provide a one stop
service. Once officials are posted, they will be required to work under the direction
and supervision of the respective Ambassador. All promotional activities will be
undertaken only through this coordinated strategy. The scope of the responsibilities
of Ambassadors will expand beyond the traditional diplomatic functions to include
responsibilities relating to investment, trade and economic affairs.
45. Hon Speaker, foreign exchange controls and import and export control
arrangements will be simplified to facilitate foreign exchange inflows to our
country. This will facilitate to operate bank accounts abroad, payment of import
bills, margin requirement for advance payments, forward contact arrangements etc.
The Central Bank of Sri Lanka will shortly issue new guidelines on foreign exchange
transactions. The Central Bank will also publish a revised guide, showing further
improvements in “Doing Business” in Sri Lanka in terms of my proposals, in the first
100 days of 2011.
A Simple Income Tax System
46. Hon. Speaker, our development thrust over the next decade is to become the
knowledge hub in the region. The promotion of knowledge based industries requires
professionals. As I intend to mobilize our professionals and build a knowledge
reserve in our country, I propose to create the region’s best personal income tax
regime. Therefore, I propose to reduce the current tax rates on personal income
ranging from 5 to 35 percent to 4 to 24 percent. I propose to increase the tax free
threshold income from Rs. 300,000 to Rs. 500,000 and the tax slabs from Rs.
400,000 to Rs 500,000. I also propose to extend this to non-resident Sri Lankans.
Our professionals need not worry about high taxes any more.
47. Hon. Speaker, the wage earning middle income employees who are subject to PAYE
tax needs a simpler system. Therefore, I propose to exempt any employee earning
Rs.600,000 per year (Rs.50,000 per month) from PAYE tax. Applicable tax rates for
employees earning over Rs. 600,000 will be reduced subject to a maximum rate of
24 percent. The new PAYE system will be a final tax at source. Employees will not be
required to file returns unless they have other sources of income. I also propose to
apply the new PAYE system to the public sector as well. This will correct the long
standing discrimination between public and private sectors..
48. Hon. Speaker, I propose to increase the tax free threshold on interest income from
Rs. 300,000 to Rs. 500,000. The applicable tax slab will also be increased to reduce
the tax burden on those who live from interest income.
49. Hon. Speaker, at present the Provident Fund income of employees are taxed three
times. I consider this is not correct. Further certain employees and employers
operate outside provident fund schemes to evade tax. Therefore, I propose to exempt
terminal benefits from Employees Provident Fund from income taxation.
Social Security
50. Hon. Speaker, our working class is our biggest asset. They sacrificed a lot during the
26 year old conflict. They stood for a united Sri Lanka and helped to defeat
terrorism. We have regular consultations with them. Ever since I became the
Minister of Labour in 1994, I tried to understand the prevailing dual treatment
relating to pension rights. I think everybody must have an income after retirement.
Therefore, I propose to set up a Employees’ Pension Fund to provide post retirement
pension benefits to employees in the private and corporate sectors. Towards this, I
propose a 2 percent contribution from employees and a 2 percent contribution from
employers to this fund. The employers will be required to transfer the entirety of the
gratuity payment to this fund. Employees too will be required to transfer 2 percent
of their Pension Fund balance at the time they withdraw the Pension Fund, in lieu of
future pension benefits from the Employees’ Pension Fund. I also propose that
everybody must contribute for a minimum 10 year period to earn a pension. The
Employees’ Pension Fund will be managed by the Monetary Board of the Central
Bank.
51. Hon. Speaker, nearly 3 million Sri Lankans are engaged in overseas employment.
The remittance income to the country is expected to be nearly US$ 4 billion this
year. However, there is no proper social security system for these people when they
reach old age. Therefore, I propose to set up an Overseas Employees’ Pension Fund
(OEPF). Each employee is required to contribute at least Rs. 12,000 per annum to
this fund. The contribution can be made in stages during the year. Each employee
must contribute for a minimum period of 2 years. Pension will be paid after
reaching the age of 65 years in the case of men and 60 years in the case of women.
The Foreign Employment Bureau will transfer its unused funds to this pension fund.
In appreciation of the valuable contribution made by such overseas employees, to
improve country’s foreign exchange earnings, the Government will contribute Rs.
1,000 million as an initial capital for this fund in 2011.
52. Hon. Speaker, I promised to introduce a pension scheme for every citizen over 65
year of age. We need to prepare for a larger elderly population by 2020. A
successful pension scheme can be worked out only by making it a contributory
scheme. Therefore for the unorganized sector, I propose to set up a Citizens’ Pension
and Insurance Fund (CPIF). I propose to merge all existing schemes under various
agencies to this new Citizens’ Pension and Insurance Fund. Every one seeking
membership would have to contribute a minimum of Rs 5,000 per year as and
when they have money. Pension will be available after contributing for a period of
10 years and after reaching 65 years of age. The Government will contribute Rs
1,000 million in 2011 to form this new fund. Nearly 3 million persons engaged in
agriculture, fisheries, transport, construction, self employment etc. will be the target
groups of this fund.
Common Amenities and Housing
53. In response to our invitation to the public to participate in the formation of this
Budget, a number of people have expressed concerns over incomplete projects,
unused public buildings, playgrounds etc. standing unattended by government
agencies. As rightly pointed out, we need to put them in to productive use.
Therefore, all line agencies and ministers must ensure that these concerns are
addressed within the first 100 days of 2011. I propose to allocate Rs. 1,000 million
to attend such neglected public assets for the benefit of the community.
54. Hon. Speaker, we have committed to develop one million housing units during the
next 6 years. Our first priority in this initiative is to ensure that all displaced people
will have access to decent housing before the end of 2012. We are grateful for the
assistance extended by the Prime Minister of India to build 50,000 houses. The
Government has also mobilized funding through donor agencies, friendly countries
and its own budgetary resources to rehabilitate further 80,000 houses. Our next
priority is to develop 70,000 housing facilities for shanty dwellers in urban areas.
The “Gama Neguma” initiative, Jana Sevana initiative, provincial councils and other
regional development initiatives will target building 80,000 housing units for low
income rural and estate households each year, over the next 6 years. Public and
private sector employees will be supported with expanded housing loan schemes.
55. Hon. Speaker there is also an urgent need to modernize housing facilities built over
40 years ago. 19,300 housing units providing shelter to about 75,000 people belong
to 176 old housing schemes. As phase one, housing schemes such as Maligawatta,
Serpentine etc. will be rehabilitated in 2011. I propose to allocate Rs. 1,000 million
for a 3 year rehabilitation initiative of these housing schemes requiring the relevant
households to assume future responsibilities of maintenance of the respective
housing units. The National Housing Development Authority (NHDA) will provide
planning and technical assistance for low income households to build and improve
quality housing. State banking facilities and the internally generated income of
NHDA will be utilized to promote low income housing. A Construction Technology
Park will be established to popularize technical skills and low cost housing
technology among peoples. In order to further promote our construction industry,
foreign contractors will be required to establish working partnerships with local
construction companies. I propose to reduce income tax on the construction
industry from 15 percent to 12 percent. In order to maintain a proper data base and
to ensure that every house is added to the system, an Information Secretariat will be
established. I also propose to allocate Rs. 500 million for the early completion of the
already initiated housing schemes.
56. Hon. Speaker, Our objective as a middle income country is not to build concrete
structures all over. As such, the Government has planned its urban development
strategy while ensuring the protection of public places, playgrounds, water
reservoirs and green belts in townships. Certain government premises will be
relocated and old housing schemes will be redeveloped. To facilitate urban
development initiatives, an Urban Development Fund will be established to meet
relocation expenditure. Priority will be given to provide modern housing for shanty
dwellers and payment hawkers within the same localities that they presently
operate. In all urban development planning, dedicated common facilities will be
reserved for three wheeler and taxi parking and self employment opportunities.
Plantation Economy
57. Hon. Speaker, plantation agriculture plays a strategic role in our economy. The
export income from plantation industries can be doubled by improving cultivation,
processing and promoting higher value added export products. In order to
maintain tea production at 300 million kg per year, we need to expand the
cultivation of tea. Therefore in order to encourage replanting and new planting, I
propose to increase the subsidy by Rs. 50,000 per hectare to small holder tea
growers. I expect an extra 1,500 hectares of plantation annually under this
program. A revolving fund facility will be arranged to provide related credit
facilities. Re-plantation under plantation companies will be promoted through the
proposed investment fund in the banking system. Since a large area of land under
plantation companies remains unutilized, I propose to give a 6 months notice period
for such companies to put unused lands in to productive use. If plantation
companies do not comply with this deadline, such unutilized lands will be
distributed among small holders for re-plantation. Tea Research Institute will
promote technology and research to improve quality tea, propagate high yielding
varieties and minimize post harvest losses. The tea sector must move forward with
very high value added exports with Sri Lankan brands. Therefore, I propose to
increase the export CESS on bulk tea to Rs. 10 per kg.
58. In the Budget estimates, Rs. 500 million has been provided to give subsidies for
replanting, new planting, inter cropping and productivity improvements in the
coconut sector. In addition, Rs 200 million has been provided to curtail the crop
diseases spreading in the Weligama area. Intermediate cropping and drip irrigation
technology will be introduced for these areas to be able to adopt alternate crops.
Coconut cultivation is also encouraged in the Northern and Eastern provinces. Our
intention is to raise coconut production to 3,500 million nuts per year from the
current level of 2,800 million, over the medium term. Lease agreements of
unutilized lands given by the Land Reform Commission and the Mahaweli
Development Authority will be terminated unless such lease holders put such lands
in to development work before end of June 2011.
59. Hon. Speaker, 35 percent of the raw rubber production is still exported as a primary
commodity. As the world demand is shifting towards natural rubber, we plan to
increase rubber production by almost 50 percent over the next 10 years. This
requires new plantation and re-plantation. New plantation is promoted in
Monaragala, Vavuniya and Mullative districts. I propose to increase the replantation
and new plantation subsidy in support of this goal. In addition it is
proposed to give a 50 percent subsidy to popularize the use of rain guards, to
increase production from the existing plantations. Therefore, I propose to increase
the budgetary allocation of the Department of Rubber from Rs. 500 million to 750
million.
60. Hon. Speaker. I am of the view that our rubber based industry could be made a one
billion dollar export earning industry, if we increase manufacturing rubber based
products in this country. The annual cost of tyres and tubes in which is US$ 50
million could also be reduced, if local raw rubber could be channeled to industrial
production. Therefore to encourage value added exports, I propose to increase the
CESS on the export of raw rubber from Rs. 4 per kg to Rs. 8 per kg.
Agrarian Economy and Food Security
61. Our country can reach self sufficiency in many agricultural products. This requires
an increase in the supply of high quality seeds and planting material. The research
talents in the Department of Agriculture and our universities must focus on high
yielding, quality crops that are abundantly cultivable in Sri Lanka. The development
of such crops will raise rural income and reduce the cost of imports by US$ 500
million. Therefore, 19 seed farms and all unutilized lands in agricultural research
centers such as Mahailluppallama belonging to the Department of Agriculture must
be developed as a national priority. I propose a 3 year accelerated seed farm
development initiative from 2011 at a cost of Rs. 700 million. The Department will
work with the private sector seed farms to expand seed development programs. As
an incentive to the private sector, I propose to grant a 5 year tax exemption for
investment in seed farming. The seed certification service of the Department of
Agriculture must also intensify its extension services to farmers who are keen to
develop seed and planting materials. Fertilizer subsidy provides a big relief to paddy
farmers. In order to increase its productivity, we encourage the use of organic
fertilizer as well. Any irregularities occurring in the distribution and use of fertilizer
will be curtailed and the subsidy scheme will be continued.
62. A wide range of spices and cocoa grown in Sri Lanka has a unique advantage in
earning foreign exchange. The unused land owned by the plantation companies will
be required to enter into cocoa cultivation. I propose to implement a 5 year subsidy
scheme for planting and replanting of spices. Financial assistance will be extended
under the SME program for spice processing industrialists to promote value added
products in this sector. The Department of Minor Export Agriculture will implement
a special program to develop spice gardens and highbred planting material. The
“Gama Neguma” inititive will also promote infrastructure required to support
livelihood activities, based on small holder spice cultivation.
63. Hon. Speaker, the global demand for flowers, ornamental plants and foliage is
growing rapidly. This sector can be an attractive employment source for women and
youth. In order to promote floriculture particularly in Awissawella, Gampaha and
Kegalle areas, I propose to implement a special incentive package to establish
nurseries to produce high quality flowers and ornamental plants. This will be
spearheaded by the Department of Botanic Garden which will provide free training
on related cultivation, give advice on how to avoid post harvest losses, packaging
and the scientific know how. I propose to allocate Rs. 100 million for this venture.
64. There are more than 25,000 minor irrigation schemes in our country. These are
vital for agriculture, to preserve the environment and to meet animal and human
needs. Therefore, I propose an allocation of Rs. 900 million for a 3 year partnership
initiative between the Provincial Councils and the Department of Agrarian Services
to rehabilitate all minor irrigation schemes in our country. Special focus will be
given to rehabilitate all minor irrigation systems in the Western Province to be able
to use over 50,000 hectares of abandoned lands.
65. Hon. Speaker, we have ample opportunities to increase fish production. We propose
to increase the fish production from the North and East, to get 50 percent of the
total production. I propose to remove registration fees, renewal fees and operational
charges on annual licences for fishery boats to give relief to small holder fishery
activities and simplify administration. I propose to grant credit facilities at a
concessionary interest rate of 8 percent to promote inland fishery and aquatic
resources activities. I also propose to implement a long term concessionary loan
facility for deep sea fishing. In order to promote the fisheries industry, I propose to
exempt the fisheries industry from income tax for period of 5 years. The Tourism
Development Authority will allocate Rs. 300 million for the development of
traditional fishery villages and improve fishery industry based tourism.
66. The livestock sector is critical in food security, income generation and foreign
exchange savings. Towards improving this sector, the Ministry of Livestock and
Rural Community Development will import high yielding dairy animals to supply
breeding materials to dairy farmers. Investment by private sector will be encouraged
to increase the availability of liquid milk. I propose to increase the farm gate price
for liquid milk to Rs. 50 per liter. Special credit facilities at 8 percent interest will be
extended to promote small scale livestock activities. The Department of Animal
Production and Health will engage in veterinary research to provide quality services
to farmers. Extension services will be expanded at each divisional secretariat with
more veterinary surgeons and technical staff to promote livestock activities of small
entrepreneurs.
Art, Culture and Mass Media
67. Hon. Speaker, the National Tele-Cinama Park at Ranminithenna for the artist to
develop their creations has now become a reality. We did this from the tax on the
imported tele-drams shown in our TV channels. It also helped to encourage the local
tele-drama industry. As such revenue collection is inadequate to expand this facility
further, I propose to allocate Rs 200 million from the budget to commence phase 2
of the project. I have noted that the tele-drama levy is not applicable to cable
television services. Therefore, I propose to extend this levy to cover all such
television services as well, and use such funds for the benefit of our artists.
68. The 1970s was the golden era for our folk art, stage dramas and performing arts.
Our internationally reputed artists enriched our art and culture. Next year will be a
landmark year for performing arts as we will open a world class Performing Arts
Theater in Colombo. This celebrates the long standing China- Sri Lanka friendship
which was sealed in 1952 when our two nations signed the rice rubber pact. The
Government of Korea is assisting us in the development of a new international
convention center at Magam Ruhunupura. Promoting our un-separable ties, India is
assisting us to develop a cultural centre in the North. Similar facilities will also be
developed in Kandy, Trincomalee, Galle and other major townships. Therefore Hon.
Speaker, I propose to give a special priority for our performing arts. I propose to set
up a Performing Arts Trust to manage all the new facilities. The Trust will
encourage our legendary artists and producers to revive performing arts. Therefore,
I propose to allocate Rs.100 million as a seed capital for this initiative. Cash grants
will be provided to artists towards promoting art and drama. I also invite every
single bank and financial institution to sponsor staging at least one award winning
old drama during 2011 and 2012. I also propose to increase the allocation for the
construction of a SAARC Cultural Centre by Rs. 250 million to accelerate its
implementation. Hon. Speaker let us make this decade also a golden decade for the
Sri Lankan artists. I also propose to implement a ten year plan to conserve our
archeological sites throughout the country. To begin this, I propose to allocate Rs
300 million in 2011.
69. Hon. Speaker, in the 2007 Budget I gave financial assistance for Media personnel to
acquire various work related equipment and computer facilities. As our nation has
become an emerging economy in Asia we need to extend them further assistance to
acquire modern technology and equipment. Therefore, I propose a fresh allocation
of Rs.50 million to provide computer accessories, cameras and other equipments to
media personnel to develop their creative skills and quality standards.
Caring Society
70. Women and children particularly among low income families must be given greater
attention. Our country has a proud record of reducing maternal and infant
mortality. However, we have to continue our efforts to resolve nutritional
deficiencies of our mothers and children. Therefore, we need to expand the
Thriposha program to the entire 1.1 million of estimated expectant mothers in our
society. The government food production drive provides the major ingredients
including soya beans for the Thriposha nutritional food package. Therefore, I
propose to increase the present allocation for the Thriposha program from Rs.1,100
million to Rs. 1,500 million So that it will reach the all disserving mothers. We
must equally concentrate on child development at pre-school age. I propose to
allocate Rs. 200 million to popularize pre-school nurseries particularly in rural
areas. The pre-school nurseries will be assisted with classroom material and
equipment. Nutritionally rich food could also be popularized through these
nurseries. I expect Provincial Councils and Local Authorities to play a pivotal role in
this aspect.
71. Hon. Speaker, our development strategies promote a caring society. We have the
elderly, the handicapped, the victims of terrorism and the vulnerable in our society.
They need support from all of us. I propose to enhance the related budgetary
allocation by Rs. 1,000 million to increase the monthly allowance granted to these
people. I also propose to increase the monthly allowance for disabled children,
breadwinners and elderly in Samurdhi families to reduce their grief.
Self Economy
72. Hon. Speaker, three wheeler operators, lorry and truck operators and private bus
operators provide a valuable service in our economy. In order to improve their
services further, I propose to remove the VAT on leasing of assets to these services.
Custom duties on spare parts will also be reduced to moderate the maintenance
costs.
73. A substantial number of our people are engaged in self employment activities. I
propose to implement a daily credit scheme for self employment activities with the
assistance of the People’s Bank. Movable stalls to sell their products will be provided
under this new credit scheme to improve their marketability in urban townships. A
Secretariat for Self Employment will be set up in order to facilitate urban self
employment enterprises.
74. Hon. Speaker, We have a large small enterprise economy. Over 65 percent of tea,
rubber, coconut and paddy are grown by small farmers. Over 60 percent of
passenger and goods transportation is provided by small entrepreneurs. Urban and
semi urban trade is a small enterprise activity. What these people want from the
Government is only security, simple systems and efficient services. Therefore, every
government agency must have a special desk with a dedicated officer to attend
problems of these small entrepreneurs.
75. The efficient operation of a small economy needs considerable organizational
improvements. I propose to implement a number of projects such as modernization
of weekly fairs, organization of three wheeler stations, mobile shops for self
employment, retail shopping facilities for handicrafts, fresh fruits, vegetables and
home needs, marketing outlets for newspapers and magazines, retail shops around
religious and public places, small restaurants, flower shops etc. The “Gama
Neguma” program will work with provincial and local authorities to empower this
small economy. Institutional arrangements for rural development must be simplified
to empower the rural economy. Therefore, a National Secretariat for “Gama
Neguma” will be established to bring all relevant agencies in the Economic
Development Ministry under one umbrella organization.
76. Hon. Speaker, with the impending global food insecurity, it is important that the
society is prepared to face this challenge. Poultry, livestock, fruits and vegetables are
good sources of food supply. All these can be our “backyard economy”. Less
expensive organic fertilizer can be used for such activities. Therefore, I propose to
launch a National Food Production Drive through the Department of Agriculture
and Samurdhi to organize one million home gardens to develop a “backyard
economy”.
77. Hon. Speaker, the increased popularity of bread and other bakery products as well
as fast food has influenced our consumption habits. However, as global grain prices
are on the rise, it is necessary to develop appropriate technologies to reduce the
reliance on imported flour. Sri Lanka is rapidly emerging as a surplus rice producer.
Therefore, I propose to exempt machinery and equipment imported to processes
grain mixed bakery products from Custom duties and VAT. I also propose to exempt
the rice milling and bakery industry activities with a turnover below Rs. 100 million
per annum from the Economic Service Charge. Those engaged in rice based bakery
products will be given special credit facilities by the state banks.
Consumer Safety Network
78. Hon. Speaker, people are not born poor. Poverty is manmade. A prolonged delay in
legal disputes is one such cause for poverty. There are approximately 650,000
unsettled legal cases before our judiciary pending justice. As a result people spend
valuable time and money. They cannot put lands with disputes for productive use.
Therefore, I propose to implement a 3 year accelerated project to facilitate the
effective administration of justice from 2011. Rs. 400 million will be committed for
this project with an initial provision of Rs. 150 million in 2011.
79. Low income people tend to get marginalized as market forces take over production
and distribution activities. Their affordability is limited. Therefore, I propose to
expand the Laksathosa and Co-op city outlets rapidly with financial assistance from
banks. I also propose to continue the exemption of Laksathosa and Co-operatives
from all taxes. I further propose to issue food security cards for low income
households. This will guarantee a minimum quantity of rice, flour, sugar, dhal, dry
fish and milk powder at affordable prices. I propose to allocate Rs. 750 million to
implement this food security system to the poor through the Samurdhi program.
Sports Economy
80. We have every advantage to promote a sport economy. Sri Lanka is already in the
world’s cricket map. Now we have developed tennis, rugby, and other games. We
must identify youth from our universities, schools, forces, workplaces, and rural
areas to develop their sports skills and prepare them for global events including
Olympics. Therefore, the Kreeda Shakthi initiative for sportsmen with notable
talents will be expanded to train our youth. New international stadium facilities are
being developed in Diyagama, Sooriyawewa, Pallekele and Jaffna in addition to such
other facilities already available in the country. Investments in tourism relating to
sports activities including golf will be given priority. I propose to set up a National
Sports Development Fund as a public-private partnership project to promote all
infrastructure facilities and attract international sports events. I also propose to
allocate 10 percent of income from the National Lottery and levies on tourist hotel
rooms to this fund, to promote sports activities. As we have declared our candidacy
to host the 2018 Common Wealth Games, I invite the private sector ,particularly the
tourism sector, to lead the process to promote Sri Lanka’s as a destination for global
events.
Environmental Priorities
81. Hon. Speaker, Our biological resources are the key pillars of our economy. As our
forefathers did, we must recognize the critical link between the country’s river
system, biological wealth and socio economic development. Water reservoirs,
forestry, the coastal belt, mountains, rivers and lagoons are critical factors of
environment. In view of this, the Ministry of Environment will introduce necessary
legislation and strategies to protect the country’s biodiversity. It is also proposed to
introduce an integrated water management system based on the country’s 103 river
basins. The budgetary resources that will be channeled through the Ministry of
Environment will be given high priority for a rapid re-forestation program. I also
propose that at least one land-filled site is identified for waste management in each
Pradeshiyasabha division to improve waste management systems. I propose to
allocate Rs. 500 million from the regional development initiatives, to spend on this
program.
Infrastructure Cost
82. This Budget provides Rs. 413 billion for public investment in roads, electricity,
water, irrigation, ports and aviation activities. Capital investment in the continuing
expansion of a power generation and distribution system is likely to exceed Rs. 64
billion over the 2 years. We have already prevented power cuts and made electricity
available almost to everybody. There is a cost to all these luxuries. Therefore I
propose to make a revision to the electricity tariff structure from January 2011. I
propose to reduce tariff by 25 percent to religious places, government hospitals,
schools, vocational training institutions and universities. The present tariff rate will
continue for small businesses and SMEs. I propose a 8 percent increase in tariff for
other users except for the first 90 units.
83. Hon. Speaker, we have earmarked Rs 109 billion for the continued expansion of the
road sector. Our aim is to develop national and provincial roads in the entire
country before 2013. Therefore, I propose to allocate a further sum of Rs. 20 billion
in support of the provincial road development initiative. Registration fees on motor
vehicles need revision, considering improvement in our road network. However, no
revision will be made for three wheelers, agricultural and goods transportation
vehicles. The proposed revision will increase revenue by Rs 1,000 million. I also
request Provincial Council to increase the annual revenue licence fee for motor
vehicles by 10 percent.
Streamlining of Revenue Administration
84. The operation of the Provincial Turnover Tax and various national taxes results in
tax on tax. That causes a high cost particularly to SMEs and consumers. Hence, I
propose to remove the Provincial Turnover Tax. The Government will credit one
third of revenue collected from the Nation Building Tax and entirety of the stamp
duty collection and 70 percent of the motor vehicle registration fee, to the Provincial
Council revenue account. As I propose to implement this proposal from January
2011, I request Provincial Councils to adopt applicable changes to their regulations.
85. Hon. Speaker, revenue of local authorities has eroded as properties are not valued
realistically. Therefore, I propose that the valuation of property based rent income of
local authorities and other agencies must be done only by the Department of
Valuation. Revenue from these arrangements is estimated over Rs. 2,000 million per
year. The local authorities can use such income to improve the environment, street
lightening, waste disposal, sanitation etc.
86. The Economic Service Charge will be simplified within a four band rate structure. I
propose to reduce the Nation Building Tax from 3 percent to 2 percent. The
applicable threshold will be fixed at Rs. 500,000 to broaden its base. Manufacturing
and processing industries below Rs.50 million and hotels below the three star
category will be exempted. I propose to abolish the Social Responsibility Levy, Rural
Infrastructure Development Levy and Debit Tax to simplify taxation. I propose to
exempt government agencies from Construction Guarantee Fund Levy to reduce the
cost of public investments. I propose to exempt Ceylon Electricity Board, Ceylon
Petroleum Corporation, National Water Supply and Drainage Board and Sri Lanka
Ports Authority from income taxes for a period of 5 years. They will be required to
pay one fourth of their profit as deemed dividend to the Government. The VAT
suspension scheme is simplified to encourage SMEs to graduate to the VAT system
over 10 years. All tax refunds will be made by account payee cheques only. I
propose that tax payments on VAT and NBT will be required to be made on a
monthly basis while tax returns will have to be filed on a quarterly basis. I propose
to increase the depreciation allowance on plant and machinery to one third and on
buildings one tenth and reduce distributable profits for deemed dividend tax to 10
percent to promote investment.
87. Hon. Speaker, I propose to appoint an Independent Revenue Commission (IRC)
pertaining to Customs, Excise and Inland Revenue to hear disputed tax issues for
determination within 90 days. Any further actions after receiving a determination
will be allowed only upon the payment of the disputed tax to a special account. The
existing Board of Review will be dissolved.
88. Idle funds other than 6 months working capital requirements in the hands of
government agencies including promotional and regulatory bodies will be
transferred to the Consolidated Fund on or before 31st January 2011. Thereafter,
such agencies should ensure no funds will be retained with them other than the
requirement for 6 months working capital requirements without the approval of the
Treasury.
89. I propose to further simplify the Custom duty structure as a four band rate
structure. The industries with local value addition will be promoted by allowing
access to raw materials and machinery at a low rate of duties to encourage
advanced technology and upgrade the production processes. The Government will
also introduce a new policy framework for bonded cargo to develop Sri Lanka as a
trading hub. The special Commodity Levy Act will apply to selected imports to
stabilize price fluctuations of sensitive products in the domestic economy. The
Government will implement bilateral and multilateral Trade Agreements and the
WTO Agreement having regard to environmental, health and security
considerations. The new Revenue Protection Order giving effect to the proposed
charges will be issued tonight. Antidumping, countervailing as well as a legislation
requiring labeling in all three languages will be introduced to safeguard the
national interest. The present reward scheme will be reformulated in consultation
with the Salaries and Cadre Commission to design a more equitable incentive
scheme to all officers in the Customs.
90. Hon. Speaker, in the process of my pre budget consultations, I realized that further
jobs need to be created at managerial and technical levels, to implement
development work. Therefore, I propose to recruit 10,000 graduates to the all island
services in the fields of engineering, administration, planning, teaching, technical
services, agricultural extension and other skills. A further 1,500 graduates will be
recruited as Management Trainees to State Banks and other financial institutions in
order to introduce younger staff. The Ministry of Defence has brought to my notice
1,500 nurses are needed for its hospitals. These recruitments will absorb graduates
and other qualified youth who are seeking employment.
91. Mr. Speaker, I gave serious thoughts to salary related issues of public servants. An
increase of Rs. 100/- per month for salaries and pensions will cost Rs. 1.9 billion
annually. As such, wage increases are not easy. However, public servants deserve
some relief without compromising development priorities. We cannot forget the
exemplary manner in which they managed the Tsunami and liberated people from
terrorists while also carrying out their routine responsibilities. We need to prompt
public servants to work harder and serve the people. Their concerns must be
recognized and resolved to motivate them. Many public servants have lost
increments due to prevailing anomalies. Certain provincial teachers are yet to
receive payments for a previous anomaly correction. Associated anomalies of
teachers should be corrected through the new Service Minute.
92. In this background, I propose to grant a 5 percent increase as a non pensionable
allowance to all public servants and security forces. This will maintain the present
structure of 1:4 in the public service salaries. I also propose to increase the Cost-of-
Living allowance by Rs. 600 per month from January 2011 to all public servants
and security forces in non staff categories. I propose to increase this allowance to
staff categories from July 2011. I propose to implement the recommendations of the
Salaries and Cadre Commission with effect from July 2011 to correct prevailing
anomalies of all non staff employees in the public service. I further propose to
implement the applicable salaries to teachers in terms of the new Service Minute
with effect from January 2011. I also propose to settle salary arrears of teachers at
provincial level.
93. Hon. Speaker, for all pensioners, I propose to increase their Cost-of-Living
allowance by Rs.250 per month from January 2011. In order to correct anomalies in
the pension structure, I propose an increase of Rs. 750 per month to those who
retired prior to 2003 and Rs. 250 for those who retired between 2003 and 2006.
This will be effective from July 2011. My proposals to increase salaries and the
Cost-of-Living allowance will benefit nearly 450,000 pensioners and 1.3 million
public servants.
94. The professional categories of public servants need to be incentivized to sustain
improved quality standards. Academic and research staff of our universities and
research institutions, medical, engineering, legal and specific managerial categories
perform distinctly different responsibilities. As such, their services need to be
valued. Therefore, I propose to increase the specific professional allowances to
university academic staff, medical professionals and other specific professionals
based on their professional and research specialties, to 25 percent of their salaries. I
also propose to extend concessionary duty to import motor vehicles for professional
and managerial categories of public servants working in the Government and public
enterprises. The proposed changes of salaries and pensions as well as recruitments
will cost Rs. 33 billion in 2011.
95. I wish to table relevant technical notes to my proposals. Amendments to the
Appropriation Bill to incorporate borrowing limits and related revised estimates to
the Draft Budget Estimates will be presented to the Parliament before the
commencement of the Committee stage debate.
Concluding Thoughts
96. Hon. Speaker, let me summarize this Budget. The total revenue in 2011 is projected
at Rs. 963 billion. Recurrent expenditure is likely to be Rs.1,017 billion. Therefore
the basic deficit in our Budget is around Rs. 54 billion. As our major investments in
infrastructure, human resources, rural development and social security will be over
this deficit, the Budget deficit will amount to Rs. 434 billion which is 6.8 percent of
GDP in 2011. Our medium term objective is to eliminate our basic deficit and move
towards a budget deficit of around of 5 percent of GDP. The Fiscal Management
Report 2011 provides relevant details. Hon. Speaker, neo liberal ideologists must
understand that this deficit is not to bailout failed bankrupt companies. This deficit
involves provisions for free services, social security and development expenditure.
97. My attempt in this Budget is to sustain our achievements and manage future risks in
our economy. We have achieved an economic growth rate of near 8 percent.
Inflation has stabilized at around 6 percent. Poverty has come down to 7.6 percent
and unemployment to 5 percent. These are all achievements within 5 years. This
argues well in favour of our development strategy. The Central Bank has built up
US$7 billion reserves. Our banking system has a further US$ 1.5 billion. So the
economy has sufficient external assets. All these are achievements that all of us must
be proud of. A low rate of inflation of around 5-6 percent, economic growth rate of
around 7-8 percent and a society free from poverty are our medium term targets.
Our collective effort now onwards must be to maintain these positive trends in our
economy over the medium term.
98. Hon. Speaker, raising income beyond US$ 4,000 per capita is not the only objective
in our strategy. People need equitable opportunities to enjoy such high income. They
must have equal access to roads, electricity, water, communications, housing and
health facilities. These infrastructures provide opportunities for a meaningful
economic life for them. Farmers ask for water, seeds, credit and fertilizer. Self
employed people ask for a trouble free environment to do their own businesses.
99. Hon. Speaker, above all, everybody in the society must have equal access to
education. That is the surest way of providing equality in economic growth. We
must understand that we cannot let our young people to leave our country or turn
to other options, because they cannot have better education, quality jobs and
secured living, here. These facilities must be made available to everybody in our
society, in Sri Lanka itself. It is then that such facilities currently confined only to
those who can afford, can be made available even to those who cannot afford. Our
Government under no circumstance will privatize or abolish free education or
health services. They will not only be protected but strengthened with greater
resources from the National Budget. Equally, we will introduce laws, regulations
and standards to encourage all other private educational institutions to comply with
our national requirements. We must guarantee meaningful educational
opportunities to our children.
100. Hon. Speaker, we have to be futuristic. Our sole responsibility is to manage the
present to build a better future. That should be a future with opportunities. Let us
leave our differences aside and place the country first. Let us place the future of our
children first. Mr. Speaker, my policy strategy, commitment and leadership aims at
building a prosperous future for our children. Their future lies in a knowledge
economy. Let us join hands to make our country the Emerging Wonder of Asia.
May the Triple Gem Bless You!
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