Financial Times

Budget: incentives for agriculture, shipping
The budget has drawn mixed reactions from the business community which said some proposals benefited certain industries but that others raised costs while the stock market showed a marked lack of interest. The budget contained incentives for selected sectors like agriculture, plantations, shipping and the dairy sector.

“Overall, there’s nothing fantastic in the budget but there’s nothing bad either,” said Rajan Yatawara, chairman of the Hayleys conglomerate. “The government will have a monumental task trying to monitor the implementation of these proposals.”

Vajira Premawardhana, Executive Director, Lanka Orix Securities Company said the budget is a neutral one, but there are hardly any concessions for the private sector.

“The budget is neither good nor bad, but the private sector, which is driving the economy has not got any concessions. There are concessions granted from farmers to tsunami babies and from artistes to cricketers, but the private sector has not got any concessions.”

He said the budget has some very good recommendations such as relocating as well as setting up industries outside Colombo and Gampaha and concessions to the small and medium industries.

Yatawara welcomed the removal of VAT on tea factories, a long-standing demand of regional plantations companies and private tea factory owners, but said the firms would not be able to recover past dues.

The proposals were favourable for the development of agriculture, especially processing of agriculture products, as well as shipping. Hayleys is extensively involved in the agriculture sector and in recent years also got into ship owning which has proved profitable.

While the cut in taxes on ship agency profits was welcomed as encouraging transhipment cargo through Colombo Port, ship owners were disappointed over the budget’s failure to address key issues that discourage vessel ownership.
The budget exempts ships registered under the Sri Lanka flag from VAT, in keeping with international practice, and to encourage ship ownership.
However, shipping industry officials said the budget proposal did not address more critical issues like ships being liable for other taxes as they are considered imports.

The Lanka Ship Owners Association has been asking for an exemption for ships registered in Sri Lanka from section 47 of the Customs Ordinance to overcome the difficulties they faced because of the import duty, Ports and Airport Levy and VAT.

“But the government has only looked at VAT,” said Mohamed Reza, of the Lanka Ship Owners Association. VAT was not considered a serious issue as it could be claimed. Of more concern to the shipping industry is the sharp increase in the Port and Airport Levy, which has been raised to 2.5 percent from 1.5 percent on items other than exports.

“This costs a lot of money. Vessels calling at Colombo port and owned by Sri Lankan ship owners are seen as imports - that’s the main problem. Ships should not be considered as imports,” said Stephan Kuehl, General Manager, Mercantile Shipping Company, a ship owner listed on the Colombo Stock Exchange.

The budget also halved to 15 percent income tax on shipping agents to encourage container transshipment at Colombo port. “This is a move in the right direction,” said Parakrama Dissanayake, Chairman/Chief Executive Officer of Aitken Spence Shipping, which is expanding it fleet of cargo ships. “With Colombo South Port coming on stream, it will be more of an incentive to shipping agents to attract more lines to Colombo.”

Meanwhile, the stock market appeared to be not interested in the budget proposals but was closely following the campaign for this Thursday’s presidential election.

“There is nothing negative in the budget where the stock market is concerned and the market has not reacted to this budget,” Namal Kamalgoda, Chief Investment Officer, Eagle NDB Fund Management said.

However, he said that it is not clear how the government plans to fund its highest recurring expenses, which are pensions and government salaries for next year. Lanka Orix Securities Managing Director, Tushan Wickramasinghe said there is concern as to how the public servant salary hikes will be implemented and financed.

He said that the corporate tax being increased in quoted firms from 30 to 33 1/3 percent will not affect the private sector. “It has been increased by a very negligible amount and will not affect the companies.”

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