Chambers welcome proposals, point out gaps, problems
The government’s budget for 2006 has increased spending to
Rs 672 billion from Rs 554 billion rupees this year while total
revenue is expected to rise to Rs 477 billion, leaving a deficit
of Rs 195 billion, up from Rs 168 billion this year. The government
estimates the deficit to rise to nine percent of GDP in 2006 from
8.5 percent this year. The Central Bank in a report released Wednesday
said economic growth for this year was expected to be 5.3 percent,
down from 5.4 percent last year and 6.0 percent in 2003. The following
are key budget highlights of importance to the corporate sector
and reactions from the business chambers.
business in outstations needs better infrastructure – CCC
The Ceylon Chamber of Commerce said that despite measures to stimulate
certain sectors of the economy, the budget lacks the “vitality”
required to energise the economy and eradicate poverty.
“Strategies to promote savings and investment, in particular
foreign direct investment and development of infrastructure, such
as roads, railways and power, have not been adequately addressed,”
it said in a statement.
said that fears that a pre-election budget could be used as a political
contrivance appear to no longer be the case, its original concern
remains that the budget should not have been presented immediately
prior to a presidential election. The rationale was that the shortly
to be elected president should be afforded the manoeuvrability to
implement the vision for which he had received a mandate.
encouraging the relocation of businesses and new investments in
underdeveloped areas are steps in the right direction since this
will generate employment in such areas and contribute to the reduction
“However, rural sector development will not materialize unless
the requisite infrastructure, such as good road networks to access
the markets and sea ports and airports, the augmentation of power
supply and high speed data transmission services, is provided,”
the CCC said.
It said that despite consistently proposing the widening of the
tax base as a means of increasing revenue, the budget has increased
corporate tax rates instead.
proposed that, at the point of legislating, the tax increase be
introduced as a surcharge on income tax, for a limited period, until
the tax base can be expanded to yield the required revenue.
also said public sector salaries should be market based to attract
the best available talent, particularly at managerial level.
merely increasing public sector salaries, as proposed, without addressing
the need to improve efficiency and rationalize the cadre of the
agencies that are overstaffed and incompetent, will prove to be
Until this is addressed, much of the tax revenue will be expended
on non-productive remuneration, rather than on meaningful investment
in economic infrastructure, the CCC said.
also described as a positive step limiting the fuel subsidy to Rs.3,
000 million per annum, through the reintroduction of the fuel pricing
“All indications are that fuel prices will remain at present
levels or increase further.”
It also described as praiseworthy the decision to treat the export
of services as an equal priority as the export of goods through
the national initiative to promote the export of professional services
by affording tax exemptions and lower tax rates for income earned
through services provided to foreign persons for payment in foreign
proposals made to further develop the apparel sector, agriculture,
including value addition, and the small and medium enterprises are
some of the other commendable features of the budget.
allocation to combat avian flu – NCE
The National Chamber of Exporters of Sri Lanka (NCE) noted that
only a few proposals made by the chambers in relation to exports
were included in the budget and that there was no allocation to
fight the threat of avian flu.
“The Chamber is surprised to note that a budgetary allocation
has not been made to implement measures to combat the threat of
Avian Flu,” it said in a statement.
”This will have very adverse effects on the local poultry
industry, which is a substantial revenue source for government as
well as for income and employment generation in the rural sector,
in the event the industry is affected by Avian Flu.” The NCE
said it appreciates the fact that the proposals in the current budget
are a continuation of the government’s development policies
which were focused on during the previous budget despite the current
It welcomed the move to reduce the Economic Service Charge on tea
factories to 0.25% but noted that all the other industries have
been ignored, although the Chamber proposed that the ESC should
be removed for all export industries.
“The proposal to refund VAT dues within 15 days to exporters
would bring some relief to the export sector,” the NCE said.
“The proposed VAT relief for imports of timber will help to
prevent illegal felling of forest timber.”
The grant of VAT relief for raw materials and dyes used in the handloom
industry will boost the local industry.
The NCE welcomed the proposal to remove the Port and Airport Levy
(PAL) as a further incentive to the exports economy. But it said
it was not clear whether the proposal that the current levy of 1.5%
on items other than exports (i.e. imports) will be raised to 2.5%
will apply also to imported items / raw materials used in export
industries in which case the additional cost for the export industry
would exceed the benefit.
“In any event, the proposal to increase the current levy from
1.5% to 2.5% will increase the cost of imports, which will have
an adverse impact on the price of goods.” The NCE said some
of the negative aspects of the budget proposals included the introduction
of stamp duty and the cut in duty on three wheeler tyres from 28%
to 15% which will have an adverse impact on the local industry as
there are three factories which manufacture such tyres.
“It would have been more desirable to give some VAT relief
to the local industry than encouraging imports.”
The NCE said all relief in respect of tax, investment, depreciation,
VAT and duty have been given only to a few industries such as health,
printing, gems, packaging and processed agriculture while other
important value adding industries including rubber have been neglected.
industry happy with infrastructure investment projects
The Chamber of Construction Industry said it was pleased that the
budget has increased the capital of the Construction Guarantee Fund
and provided concessionary financing terms to import modern machinery
This will be a tremendous boost for the construction industry, a
CCI statement said. The budget proposal incorporated the chamber’s
persistent promotion of infrastructure development with investments
in development projects.
“A wide range of construction activity related to infrastructure
is reflected in the budget, which includes port and airport development,
irrigation and water supply, expressways and road construction and
The CCI said it fully supports the proposal for regional development
to optimize the economic potential of the different regions in agriculture,
fisheries, livestock, tourism, and industries.