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New laws to strengthen national economy: FinMin

6 June 2016 10:08 am - 0     - {{hitsCtrl.values.hits}}

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Untitled-1„„By Chandeepa Wettasinghe Over 15 new pieces of legislation will be presented to parliament over the next two weeks to strengthen the national economy, Finance Minister Ravi Karunanayake said recently. “The Prime Minister is changing legislation. In the next couple of weeks we have 15-20 Acts and Bills being brought into parliament and will be put in place,” Karunanayake said delivering the inaugural Founders Day Oration of the Institute of Chartered Management Accountants (CMA) on Friday.

According to him, these new laws would allow the current and future governments to overcome the effects of the massive economic mismanagements of the past. He said that the new legislation includes the new Colombo International Financial Centre as well as the much discussed, more flexible Exchange Management Act. “Exchange Control is something which is archaic, unwarranted, and draconian in nature. It is not to be amended. It will be repealed. In the next 2-3 weeks we will bring in necessary controls into the Monetary Act and into the Banking Act,” he added. Some of the other Acts and Bills that will be amended or introduced may also concern the setting up of the new investment one-stop shop, ‘Agency for Development’ as a public-private partnership, as well as the Community Reinvestment Act to induce rural lending, which have been talked about recently.

The private sector is also expecting laws allowing the government to divest its interests in non-strategic businesses such as the holding companies for the Colombo Hilton and the Grand Hyatt as proposed in the budget. “We’re democratic in nature, as a result there are delays that are sometimes unacceptable to people, but we’re doing it in the best manner. I think today’s context needs to be exploited for a better tomorrow. Policies which we set today will have a long impact on the future,” Karunanayake said. He added that the government will be increasing the age limit for domestic workers going abroad from the current 21 years to 25, and will also be limiting approvals to those who can send back a minimum of US$ 350 a month, compared to the current average remittance of US$ 200. “Investors are worried about the underutilization of labour. Labour is going abroad when we easily need 300,000-400,000 in the near future,” Karunanayake said. He added that the government will also be making 13 years of education compulsory, starting from 2017, to impart greater knowledge among the disgruntled youth, in order to make them more employable.

Karunanayake said that the new legislation will be in effect for the next couple of decades unlike in the past, perhaps hoping that the new government will stay in power for the said period. He noted that even though there is some friction among parties that constitute the unity government, it is not overwhelming the government’s collective vision of national governance, and that these new legislation will be passed without any major issue. However, certain clauses of the last legislation to be introduced by the unity government, the Right to Information Bill, were considered unconstitutional by the Supreme Court. The Bill sought to repress certain important economic information from reaching the public. Karunanayake said that the new legislation will be in effect for the next couple of decades unlike in the past, perhaps hoping that the new government will stay in power for the said period.

GSP Plus to save US $ 1.9bn intariffs

Karunanayake said that the European Union has invited Sri Lanka to apply for the General System of Preferences (GSP) Plus facility and Sri Lanka would be able to save up to around US$ 1.9 billion in tariffs if the tariff scheme is reinstated. “We were invited today to apply for the GSP Plus. You can see the results of that in the next hundred days,” he said. The GSP Plus application processing period is around 10-12 months.

The EU delegation until now had held the belief that it was not the right time for Sri Lanka to apply for the preferential trade programme. Further, with Sri Lanka set to enter the upper-middle income status later this year or early next year with a gross national income exceeding US$ 4,125, the country will be ineligible for the GSP Plus facility, according to EU Regulation 978/2012. Central Bank Governor Arjuna Mahendran said that one of the strategies of the government would be to negotiate for GSP Plus based on the regional income disparity. Sri Lanka lost the GSP Plus facility and reverted to the GSP tariff bracket in 2009 over allegations of human rights violations during the latter part of the civil war. Local industries lost significant ground in the EU markets as prices of Sri Lankan goods rose, and experts note that if Sri Lanka does not gain GSP Plus soon, current markets would shift completely to other markets. It has also been pointed out that Sri Lankan industries may not be able to regain a significant market share before the EU revokes GSP Plus due to rising income levels in Sri Lanka.

Govt. revenue to improve 14% of GDP this year

Government revenue is slated to move up to 14 percent of Gross Domestic Product (GDP) in 2016, the country’s Finance Minister Ravi Karunanayake said. “It is our intention that before the end of the year, we’ll ensure that it moves up to 13.8 to 14 percent, and that will be a good starting point, although we are a long way from catching up to our Asian peers which are in the range of 17-19 percent,” he said. The government increased rates on value added tax and Nation Building Tax last month, amid wide protests from all parts of the economy. The government revenue had not been sufficient to service the enormous foreign loans taken by the former regime, leading to a balance of payment crisis, which will be averted in the short to medium term since the International Monetary Fund finalized the 3-year US$ 1.5 billion loan this weekend.

“At this particular moment we have a public debt of Rs. 9.6 trillion, and we have contingent liabilities of a further Rs. 1.4 trillion. So you could see, with our debt servicing, unable to be met by our revenue, how can we fashion development into the future?” Karunanayake queried. The new government has shown significant improvement in revenue collection, as revenue in 2015 was 13 percent of GDP, compared to 11.4 percent of GDP in 2014, while tax revenues moved up to 12.1 percent of GDP from 10.1 percent of GDP in the same period. “We’re talking of revenue of almost 10-11 percent when we took over office, but I’m happy to say that as of this moment this revenue has moved up to 12.9 percent of GDP,” Karunanayake said. He said that tax discipline has improved significantly since the current regime was elected into power.

“Revenue’s not just coming in because some rates were increased. There are voluntary payments that are taking place. There’s a cleaner government that is going on,” Karunanayake added. He noted that excise revenue which had been Rs. 2.8 billion in November 2014 had increased to Rs. 13.8 billion now. “A 5 times increase in just 15 months shows that if the top is clean, it flows down. Where was this money going before? Customs has increased revenue by almost 35 percent,” He said. However, Karunanayake noted that plans are in place to improve direct taxation through the Inland Revenue Department, which has not been performing well. He said that the policies being made now will last for the ‘next couple of decades’ but went on to say that taxes will be reduced soon. “There are 43 taxes. We will ensure that these are reduced. I’m sorry we have to impose things like VAT. We are trying to reduce taxes, but we need a temporary period. We need a few months. In the next 2 months, the economy will strengthen,” he said.

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