No bribes in 2015 budget – Treasury asserts
Sri Lanka’s latest budget hasn’t given any ‘bribes’ as is popularly believed, but it has looked at all aspects, a top Treasury official said, dispelling that Budget 2015 is full of handouts.
“This is not a standalone or a one-off budget but a continuity of consistent pragmatic and prudent policies pursued since 2005,” Deputy Secretary to the Treasury S.R. Attygalle told the Ernst & Young’s post-Budget forum this week. Urging the naysayers to refresh their memory, Dr. Attygalle listed some measures announced and implemented since 2005, adding that the 2015 Budget focuses on sustaining the goals achieved during the past decade. He was standing in for Chief Guest Finance Secretary Dr. P.B. Jayasundera who was indisposed.
The country’s external debt indicators have continued to improve over the past five year period, he said. Although the government borrowing has increased as a result of rapid public investment taking place in the country, the debt to GDP radio has declined, recording a figure of 78.3 per cent in 2013 (lowest since 1990).
E & Y in their analysis of this year’s budget said that composition of domestic debt to foreign debt has being changing in favour of foreign debt and that it’s expected that the present mix of foreign debt to domestic debt of 44 per cent to 56 per cent will be maintained in the coming years.
“Private sector credit growth has declined over the past year despite decreasing interest rates. Private sector credit grew 24 per cent, 36 per cent and 21 per cent during 2010-2012, respectively. Consumption growth contributed significantly to this growth, driven by gold-based borrowing,” Duminda Hulangamuwa, Partner E & Y said in his presentation.
Interest rates easing
Easing of monetary policy in 2013 and the decline in inflation have enabled a declining trend in interest rates, but the decline in lending rates has not been as pronounced. “Banks and NBFIs have been protecting their margins at the expense of loan growth. Partly due to this lag effect, despite the policy rate decline, indicators reveal that credit growth has yet to pick-up significantly in 2014. Decline of borrowing of state owned business enterprises from the banking system and some larger companies which are over-leveraged have started to reduce their debt exposure,” the E & Y report on this year’s budget said, adding that these could limit overall credit growth as well. Credit growth might also be restrained by the cautious approach banks are likely to take, given the high non performing asset levels in the sector. Further, blue chip companies are now attempting debt rising in the capital markets.
Sri Lanka’s private sector credit as a percentage of the GDP is relatively low at an average of 30 per cent over the past three years. The projected increase in per capita income should lead to an increase in personal consumption and provide an opportunity for increased personal lending, the report said.
As done in the previous two years the extension of the VAT net to the wholesale and retail segment of the economy has been further extended in this year’s budget with turnover threshold for a wholesale or a retail trader (being a person or partnership) to be liable to VAT has been reduced from Rs. 250 million to Rs. 100 million per quarter. The report said that this would mean that the VAT net has been extended to the wholesale and retail traders that fall within the small and medium scale enterprise category as well, commencing from January 1, 2015.
Whilst the budget proposals state that this composite Excise Duty, imposed in lieu of all the above import taxes, is to simplify the tax system, such a change could have a cascading effect on the prices of vehicles, Mr. Hulangamuwa said, adding that this is on the basis that prior to this change the VAT paid on imports of vehicles could be deducted as a credit from the output VAT of the importer. However given the replacement of VAT at import point with this composite Excise Duty the importer would not be in a position to claim any input VAT. This would result in the new composite Excise Duty being part of the cost of such imports.
“As such VAT and NBT would have to be charged at the point of sale on the total cost of the vehicle inclusive of the Excise Duty as there would be no provision for an input claim. It is assumed that input VAT on vehicles imported and cleared prior to October25, 2014 would be eligible for the input VAT claims. We have not done a detailed working of this in order to ascertain the impact on prices.”
As a result of this change, there would be a difference between the cost of stocks imported and cleared prior to October 25, 2014 and thereafter. This amendment could also have an impact on the leasing industry whereby the value of the leased assets may defer (depending on the rate of tech Excise Duty).