A Tale of Taxation – a Rundown on Budget 2016

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A Tale of Taxation – A rundown on Budget2016

Featured image courtesy nation.lk

• by aisa !ickrematunge •

" on 11#2$#201%&n t'e wake of t'e Budget being (resented in

)arliament* +round,iews s(oke to se,eral (eo(le* including economists*

trade union re(resentati,es and go,ernment o-cials* on t'eir t'oug'ts–

from (ositi,es to reser,ations.

enior /conomist – ayleys +rou( es'al de 3el said t'at t'e 2016 budget

introduced some ,ery (rogressi,e measures w'ic' went some way towardst'e structural reforms necessary to dri,e t'e ri 4ankan economy forward.

” T'e (ro(osed in,estment in education* (articularly in &T* science facilities

and most im(ortantly teac'er training* are crucial. &t is essential t'at ri

4anka (rogresses towards a com(re'ensi,e o,er'aul of sc'ool curricula to

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de,elo( a creati,e* (roblem sol,ing* and inno,ati,e work force in t'e

future5 'e said.

te(s 'ad also been made to mo,e towards ex(ort orientation* wit'

increased resources for commercial o-cers in ri 4ankan embassies

o,erseas being an im(ortant element of economic di(lomacy wit' a ,iew to

market di,ersication* es'al noted.

Budget 2016 also made greater room for (ri,ate sector (artici(ation in t'e

economy wit' t'e (ro(osed sale of non"strategic (ublic enter(rises and

(ri,ate management of ex(ort 7ones. 3ore sectors were liberalised*

including some trade liberalisation* w'ic' is im(ortant in terms of dri,ing

long term com(etiti,eness.

 T'e (ro(osed digitalisation of t'e economy is also an essential measure*

allowing for wide ranging benets if im(lemented well* 'e added. T'is could

'el( wit' reducing bureaucratic (rocesses in doing business and will

su((ort t'e go,ernments commitment to fullling in,estment a((ro,als

wit'in %0 days – ,ital for muc' needed F& attraction.

owe,er* Budget 2016 did 'a,e some (itfalls* es'al noted – (articularly in

t'e area of re,enue generation.

“!it' a 89: growt' in re,enue antici(ated* a signicant im(ro,ement in

t'e re,enue administration (rocess is needed* since t'e (ro(osed re,enue

measures do not a((ear to gi,e credence to suc' 'ig' re,enue growt'.

 T'ere is a risk of scal sli((age w'ic' could result in 'ig'er interest rates*w'ic' in turn could 'am(er economic growt' in 2016*5 'e said.

 T'e go,ernment also antici(ated 'ig'er foreign commercial borrowing in

2016* w'ic' mig't be c'allenging in a more di-cult global economic and

nancial en,ironment. T'is could also re;uire more domestic borrowing*

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(us'ing u( interest rates.

 T'e budget also continued t'e (ractice of guaranteed (rices for certain

(roducts* w'ic' tends to distort resource allocation in t'e economy. &n t'is

sense* es'al said 'e 'o(ed t'at suc' (ractices would no longer be

necessary* (articularly wit' t'e digitalisation of t'e economy* w'ic' could

for exam(le enable targeted cas' transfers to ac'ie,e welfare ob<ecti,es.

=otably* t'e budget was at odds wit' t'e )3s ex(ectation of s'ifting to a

tax system wit' greater focus on direct taxation and away from regressi,e

indirect taxes. T'is budget 'as in fact reduced e>ecti,e direct taxes and

increased indirect taxation* w'ic' could be said to be at odds wit' e;uity

ob<ecti,es* es'al said.

 T'is concern was s'ared wit' 'iran Fernando* /conomic Analyst and

)roduct ead" /conomic esearc' of Frontier esearc'* w'o (ointed out

t'at cor(orate tax for most institutions 'ad been slas'ed from 29: to 1%:*

a(art from banks and casinos t'at would be taxed at 80:. 3eanw'ile* t'e

t'res'old for (ersonal income tax 'ad gone u( from s. $%0*000 to s. 2.?

million* wit' t'ose earning beyond t'is amount being sub<ected to a 1%:

@at rate regardless of t'eir earnings. !'ile t'e tax regime 'as been

sim(lied* t'e tax net 'asnt been broadened. T'e strategy was to get

more re,enue ,ia direct taxation* but its more weig'ted towards indirect

taxation suc' as t'roug' =ation Building Tax =BTC and ser,ice c'arges*5

'iran said. &n addition* indirect fees suc' as registration fees and annual

li;uidation fees mig't ad,ersely im(act small businesses* 'e added. &n fact*t'e budget didnt ade;uately address ri 4ankas budget decit and

currency rate. owe,er* considering t'e Budget was touted as

Dre,olutionary leading u( to t'e (eec'* it did in fact 'a,e many (ositi,es*

wit' some long term ambitious reforms (a,ing t'e way for growt'*

(articularly in t'e agricultural* mall and 3edium si7ed /nter(rises 3/C

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and start u( segments.

(eaking from t'e 3/ (oint of ,iew* Eo"Founder at antala )ri,ateC

4imited Gikum a<a(akse said initiati,es like t'e +o,ernment backed

guarantee system* t'e Fund of Funds sc'eme* concessions for t'ose

in,esting in small industrial 7ones in designated areas* as well as

concessions for Genture Ea(italists GEC and )ri,ate /;uity )/C will 'el(

3/s – in (articular startu(s – to access t'e funding* resources* ex(ertise

and knowledge re;uired to get t'eir businesses u( and running and

ex(and.

 T'e (ro(osed 3/ aut'ority for t'e E/ is also a welcome idea* a<a(akse

said* as it relaxed regulations w'ile ensuring re(orting re;uirements met

international standards. T'is would 'el( 3/s access (ublic in,estment

w'ile also ensuring t'at GEs and )/ could e-ciently exit from t'e

in,estment t'ey made* wit'out legal and regulatory wrangling.

owe,er* concerns remained t'at ca(ital gains made by GEs may may be

treated as (rots from normal business and t'ereby sub<ect to income tax –

w'ic' currently does not a((ly. As suc' (ri,ate sector (artici(ation in GEs

mig't not increase* 'e added.

&n addition* a<a(akse noted t'at 3/s registered wit' t'e egistrar of

Eom(anies now 'a,e to make an annual (ayment. T'is mig't (us' start

u(s to a,oid registering* losing out on t'e benets t'ey would ot'erwise

recei,e. &t mig't e,en create a s'adow sector w'ere t'e in,estments*

inno,ation and contribution made by start u(s go unaccounted for.

3ore could 'a,e been done to deregulate t'e sector* 'e added. All 3/s

now 'a,e to register wit' rele,ant local aut'orities* adding (a(erwork to

t'eir burdens. Anot'er im(ro,ement would 'a,e been to bring all t'e

+o,ernment boards and aut'orities under one central aut'ority.

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3odernising +o,ernment aut'orities dealing wit' 3/s would also be

extremely 'el(ful* a<a(akse said* since in 'is ex(erience 'e found t'em to

be outdated and slow to res(ond to ;ueries.

“& can say t'at o,er t'e last 12 mont's* ot'er t'an for regulatory

submissions or a regulatory (ayment & 'a,e not ste((ed into a go,ernment

o-ce for anyt'ing. o t'e ;uestion is* do all t'ese (ayments we make to

t'e go,ernment 'a,e any tangible return for us as 3/sH5 a<a(akse

asked.

enior 4ecturer to t'e e(artment of )'iloso('y and )syc'ology* Ini,ersity

of )eradeniya* E'arit'a erat' was less (ositi,e* saying t'e budget

smacked of re(ublicanism.

“ T'e issue wit' t'is budget* and t'e ideology be'ind it* is t'at t'ey assume

t'e (layers in t'e market are of t'e same category* and 'a,e t'e same

status and (owers. &n reality* t'ats not t'e case*5 erat' said.

e added t'at in 'is ,iew t'e budget was focusing more on t'e market t'an

on go,ernance. T'e res(onsibility of t'e +o,ernment is to act as a

regulator* w'ere de,elo(ment and business a>airs s'ould be in t'e realm

of t'e (ri,ate sector*5 erat' said.

“& would liken t'is e>ort to asking two (eo(le to run to Fort – one from

Bagatalle road and one from +irandurukotte* 3a'iyangana. Jne will reac'

t'ere* and t'e ot'er will most certainly die on t'e way*5 'e said. T'is+o,ernment is assuming all (layers in t'e market are e;ual and t'en

asking t'em to run.5

(eaking from a trade union (ers(ecti,e* erman umara* Eon,enor from

t'e =ational Fis'eries olidarity 3o,ement =AFJC said t'at t'e Budget

'ad included some social security measures to im(ro,e s'ermens li,es*

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suc' as making (ro,ision for life insurance wort' s. 1 million. owe,er*

t'e budget could 'a,e done more to (ro,ide for s'ermen* including social

security measures for s'ing gear. &n addition* umara said t'ere needed to

be a mec'anism to ensure t'at ,essels abided by international regulations.

Eurrently some s'ermen* notably t'e E'inese* were straying into

international waters @ying t'e ri 4ankan @ag* and @outing maritime law.

ee( sea s'ing is in danger t'anks to (ractices like t'is. At t'e same

time* we s'ould 'a,e t'e ca(acity to grant ri 4ankan s'ermen licenses to

go into international waters. Jf course not muc' can 'a((en wit'in a year*

but we 'o(e t'ey will take t'is u( strongly in t'e future*5 'e said. )resident

of t'e 4anka )ri,ate Bus Jwners Association 4)BJAC !3+ !i<erat'ne

said t'at 'e was still in t'e (rocess of studying t'e budget in detail.

owe,er* 'e said t'at to 'is knowledge* t'ere 'ad been no denite

(ro(osal made on (ublic trans(ort* w'ic' was unfortunate.

3eanw'ile* E'ief /conomist* Eeylon E'amber of Eommerce Anus'ka

!i<esin'a also said t'at Budget 2016 'ad 'it many of t'e rig't notes*

(articularly in terms of t'e (ri,ate sector and 'ad e,en managed a certain

amount of consistency wit' t'e )rime 3inisters (olicy statement. !'ile

some mig't argue t'at t'e reforms werent drastic enoug'* so t'at

underlying structural issues 'ad yet to be addressed* it 'ad to be noted

t'at t'e (olitical realities of a unity go,ernment 'ad to be accounted for* 'e

added.

J,erall* muc' 'ad been done to encourage foreign and domestic

in,estment.

 T'e +o,ernment 'ad gone beyond t'e usual concessionary loan strategy

wit' t'e micro and 3/ segment* w'ile t'ere were also se,eral key reforms

made on education t'at would 'el( en'ance t'e ;uality of ri 4ankas

workforce. imilarly* t'e agriculture sector too saw some interesting

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(ro(osals t'at would boost entre(reneurs'i( and ,alue addition w'ile

remo,ing t'e distortion created by t'e fertiliser subsidy. &n addition* many

areas indicated a greater mo,e towards increasing (ri,ate sector

(artici(ation in (ublic (ro<ects.

 T'e target for maintaining ri 4ankas budget decit was ambitious" and it

was uncertain w'et'er t'e stated re,enue sources would be enoug' to

deli,er* 'e added. &n (articular* t'ere 'ad been a lot of 'o(e (inned on non"

taxable re,enue* wit' a (ro<ected 200: increase.

“ T'e integrity of t'e Budget really lies on w'et'er t'e re,enue and

ex(enditure targets go t'roug' in t'e same way at t'e end of t'e year*5

Anus'ka said. &n t'is sense* meeting t'e ambitious re,enue targets a

(ro<ected increase of 80:* as o((osed to t'e a,erage %"1%: re,enue

increaseC was a ma<or concern.

Failure to meet t'ese targets would lead to a greater reliance on borrowing*

w'ic' would im(act t'e market. &f t'e borrowing was domestic* interest

rates would rise* making it 'arder for t'e (ri,ate sector to borrow and

creating com(etition. Jn t'e ot'er 'and* if t'e +o,ernment decided to

borrow internationally* t'ey would be going into a market w'ic' is already

ex(ecting a rate 'ike in ecember or Kanuary – wit' continued scal

weakness to boot.

“ T'is year is going to be an ex(eriment – and maybe its one we need to do*

since were trying to ta( sectors t'at we 'a,ent tried before*5 'e said. &n(articular* e>orts 'ad been made to lower t'e tax regime and im(ro,e

com(liance* as well as introduce some formality into t'e 3/ sector* asking

t'em to register wit' local aut'orities and encourage more transactions in

t'e banking sector* w'ic' would 'el( wit' tax collection. owe,er lowering

t'e tax regime was o>set by (eo(les (erce(tion and w'et'er t'e money

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was being used on (et (olitical (ro<ects. A s(irit of trans(arency and good

go,ernance was im(ortant* 'e added.

 T'e need of t'e 'our was strong im(lementation to ensure t'ese ambitious

(ro(osals were ad'ered to* Anus'ka said.

!'ile t'ere were many concerns raised* t'e o,erall attitude among t'ose

inter,iewed was one of cautious o(timism* wit' most noting key a,enues

for growt'. Let t'e focus on indirect taxation and re,enue sources remained

areas for concern.

Posted by Thavam