The purpose of this write up is to highlight the significant contribution to export development made by K. Shanmugalingam, former Deputy Treasury Secretary, who passed away recently. He was deeply committed to the improvement of the economy of this country; he was a true patriot. When this writer joined the Export Development Board (EDB) in [...]

The Sundaytimes Sri Lanka

Late K. Shanmugalingam’s great contribution to export development


The purpose of this write up is to highlight the significant contribution to export development made by K. Shanmugalingam, former Deputy Treasury Secretary, who passed away recently. He was deeply committed to the improvement of the economy of this country; he was a true patriot.

When this writer joined the Export Development Board (EDB) in 1981, there was an understanding among the leaders of the country at the time that export development should be given the highest priority and that the EDB be given the primary responsibility or the task of carrying the sector forward. Merchandise exports at the time (1982 and 1983) were nearly 23 per cent of GDP. There were only 975 exporters and the number of products exported was 450.

Exporters at the time faced an anti-export bias and exports were not competitive. Victor Santiapillai, Chairman of the EDB at the time convinced the leaders that a programme of incentives should be designed to make exports profitable to the investors initially. This was where Mr.Shanmugalingam (fondly called as ‘Shan’ by those known to him closely) played a decisive role.

Duty Rebate Scheme

Red tape was a serious problem. One area of red tape was with the duty rebate scheme operated by the Treasury for non-traditional, non BOI exporters (all schemes mentioned in this paper were for them). The purpose of the scheme was to refund the import duties and other levies paid by exporters on imported inputs used in exported goods, after exports take place, as these costs cannot be transferred to the buyers abroad due to the heavy competition in global markets. The procedures for this purpose were so complicated around 1981/82 that it took around one to two years for exporters to receive a duty refund. The Policy and Planning Division of the EDB prepared a paper to simplify the procedures in consultation with Shan.

When implemented it brought down the delay of duty rebate refunds from two years to less than two weeks! In addition the EDB proposed to the Customs and the Treasury to formulate a ‘Manufacture in Bond Scheme’ to allow import of inputs duty free for export production as well as the Scheme for Exemption of Intermediate and Capital Goods from Fiscal Levies. These schemes were reformulated by the EDB (under the sponsorship of the World Bank), in consultation with Ibarra Associates of Colombia supported by Shan.

The intention was to eliminate the payment of refunds altogether by granting a temporary exemption of duty payment until exports take place for the benefit of indirect exporters (those who supply inputs to exporters) as well. After the reformulation these schemes were known as Temporary Importation for Export Processing (TIEP) I and IV. These modernised the duty rebate payment on exports. It must also be stated that the Duty Rebate Committee (that met in the EDB) when fixing of rates of rebates was allowed by Shan as its Chairman to fix them in such a way as to be generous so that a grant element was included.

Tax Deductions

Shan also helped the EDB to get a scheme approved for deduction of promotional expenses of exporters, such as on research and development, from income tax.

Tax Holidays

The other area where Shan was directly involved was in the refinements to the tax holidays for exporters. The existing 5-year tax holiday on export profits at the time did not benefit new exporters fully as it took a couple of years for them to earn profits. The EDB therefore proposed to the Treasury that the tax holiday should start from the first year of earning a profit. After the expiry of the tax holiday exporters did not get any incentive for their efforts. The EDB therefore proposed to the Inland Revenue Department that they be given a half tax holiday or their profits be taxed at 12 per cent. This was accepted by the Treasury also due to Shan’s intervention. Another tax incentive obtained with Shan’s help was the Concessionary Rate of Tax for dividends declared by export companies. He also helped with the removal of export duties mainly on the three traditional products.

Investment Relief

Shan was also involved, on the recommendation of the EDB, with the introduction of the Investment Tax Allowance (Investment Relief) on the capital cost of investment in manufacturing and agriculture and the Accelerated Depreciation Allowance on plant and machinery to raise the level of investments.

National Export Development Plans

As a part of the exercise of simplifying the rest of the procedures, three National Export Development Plans were prepared by the Policy and Planning Division of the EDB indicating the constraints faced by exporters in the various export sectors, the strategies recommended for solution, the agencies of the government responsible for resolving them as well as the targets of exports that can be achieved once the strategies are implemented. The plans were approved.

Grant Schemes

The same division also prepared three grant schemes for exporters, the Export Expansion Scheme, the Export Development Grant Scheme and the Export Development and Investment Support Scheme (EDISS); payments under the last were based mainly on investments made by the firms which qualified to receive payment under the scheme. Shan helped with the formulation of the above mentioned plans and the grant schemes by sending his representatives for the discussions that preceded their finalization. These were also approved by the EDCM presided over by the President.


When quantifying these incentives in the period from 1981 to 1998 it was found that they amounted to over Rs. 45 billion. A few incentives like the half tax holiday on export profits, the TIEP schemes and the deduction of R and D expenses are still available to exporters; the others have been phased out.

The Sri Lanka Association of Manufacturers and Exporters of Rubber Products in a memo written in 1993 referring mainly to the incentives mentioned above and to the Export Refinance Scheme of the Central Bank formulated on a proposal made by the EDB, states as follows: “Further to the period 1980 to 1990, a poor policy framework had a greater negative impact on export growth than is realised. However, this was mitigated by the application of a substantial package of incentives which were offered to exporters and export industries during much of this period”. As for the National Export Development Plans, the comment made by Peter Carr, a World Bank consultant on the 1990-1994 Plan, was: “The Consultants’ overall observation is that the current EDB Plan represents an extraordinarily comprehensive, focused and results oriented document”

These incentives may have contributed in great measure for the rise in total exports to nearly 33 per cent of GDP by 2004 in which year the number of exporters and the number of export products had also risen to over 4,700 and to over 3,600, respectively. Regretfully this drive to achieve export competitiveness later regressed to import substitution creating balance of payments and external debt problems. Exports declined to about 17 per cent of GDP by 2012 vs. 209 per cent of GDP in Singapore and 66 per cent of GDP in Taiwan in 2011, which are similarly island nations.

It was a valuable but quiet role played by this patriot towards export and economic development in Sri Lanka.
(The writer is an economist)

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