Budget 2017 A Boon or Bane?

23 November 2016 12:53 am - 0     - {{hitsCtrl.values.hits}}

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“Accelerating Growth with Social Inclusion” creating the broader theme for the National Budget 2017, marks the 71st Budget of Sri Lanka. As the second Budget presented by Good Governance, Budget 2017 aims at delivering relief for Sri Lankans through paving the path for sustainable development. Amidst mixed opinions, the second reading of the Budget proposals for 2017 was passed in Parliament last Friday with a majority of 107 votes and 55 votes against it. Speaking to Daily Mirror, professionals from various walks of life representing the Economic, Tourism, Education and Energy sectors as well as the Transport, Telecommunications, Banking sectors and many other factions of society,shared their expert opinion concerning if Budget 2017 would manage to remain steadfast or fail as a people friendly budget. Excerpts of their comments are given below.   


 

“The proposed levy of two hundred rupees for SIM card activation is an idea the Government has picked up from retrograde and regressive countries” 
- Prof. Rohan Samarajeeva


 “Around 2010, the Government considered the complexity of taxes affecting the telecommunication sector and exempted telecom from the Value Added Tax. Instead a twenty percent tax was imposed for telecommunication which was remitted to the Government” said Former Director General of the Telecommunication Regulatory Commission and Telecommunication Expert Prof. Rohan Samarajeeva. “The previous Government also considered the data issue as separate from voice and value added services. By 2014, voice and value added services were taxed at about twenty five percent. Considering the disappointing figures with regard to the use of data in Sri Lanka, only a thirteen percent tax was charged on data back then. However, the Government imposed a Value Added Tax on telecommunication services last May.  


I believe that there should be a few exceptions for VAT although everything else should be subjected to a general tax regime. However, the original tax which was imposed on telecommunication as a substitute to VAT still remains the same. So when this is added up, a consumer has to pay fifty rupees as tax for every hundred rupees of data use he or she uses. This is very disappointing. This suggests that the Government really wants to discourage internet use which I find very odd. I find this odd because from one side they are discouraging internet use while on the other hand, they are spending money on tablets.  


This Government is also assuming that every e-commerce provider in the world including Amazon and e-Bay will go through some platform that is yet to be designed and is to be operated by the ICT agency. Again I find this unusual, given the Prime Minister’s statement in the Economic Policy that he wants to encourage digital commerce activities. This certainly is not a way to encourage e- commerce in the country although this has been mentioned in the budget. The budget refers to this matter more as an ICT related issue rather than a revenue measure for the Government. I think that this simply would be counter- productive to our country’s e-commerce players.  


The proposed levy of two hundred rupees for SIM card activation is an idea the Government has picked up from retrograde and regressive countries; a similar situation that was witnessed in countries like Bangladesh. According to the budget, it is proposed that the two hundred rupee levy imposed on SIM Card Activation Levy (SCAL) will help discourage the use of mobile connections temporary for fraudulent and criminal activities. This is not practical because two hundred rupees is not going to stop a criminal from using a SIM from carrying out their nefarious purposes. One of the basic principles of public finance is that if you want to encourage something, you don’t impose additional taxes upon it and this Budget had failed to grasp its meaning in terms of the telecommunication sector” Prof. Samarajeeva added.  


 

“The main concern for the tourism industry is the topline taxation of 28%”- Director - Operations of Ramada Hotel and Vice President of the Hotels’ Association of Sri Lanka 
- M. Shanthikumar

“The main concern for the tourism industry is the topline taxation of 28% which the industry is liable for”, says M. Shanthikumar, Director - Operations of Ramada Hotel and Vice President of the Hotels Association of Sri Lanka. According to him this will affect the profitability they enjoy and they are in the process of appealing to the Prime Minister about this. This is the only concern of the industry according to the Association.   


 
 

“Budget 2017 is a step forward in addressing fundamental issues with regard to fiscal management”
- Prof. Sirimal Abeyratne 


Explaining how the Budget would reflect upon the country’s economy, Professor of Economics at the University of Colombo Prof. Sirimal Abeyratne said that Budget 2017 is a step forward compared to the previous budget in terms of addressing a number of fundamental issues with regard to fiscal management in Sri Lanka. Nevertheless, he pointed out that as much as the good initiatives that have been proposed, there are several backward steps included in the Budget as well.  
 
“The Government has managed to answer some of our fundamental issues with regard to fiscal management such as the falling tax revenue as a percentage of GDP and the rising burden of debts. Currently, our outstanding debt is very high which I believe is more than 600% of the tax revenue. We also have a growing revenue deficit (Government revenue has not been sufficient even to cover the recurrent expenditure) and all our public investments are debt finance based on Government borrowings. These are the issues we had in our fiscal management and the Government has attempted to address these issues in Budget 2017. Also there are proposals for investment and export growth in the Budget which is a step forward and I believe that more emphasis should be laid on this particular area for a positive economic growth. It should be understood that without investment growth and export growth, Sri Lanka’s medium term economic prospects will not turn out to be prospective.   

On the other hand, I see that the Budget has not moved away from the traditional handout delivery attitude they have. In fact they have made some proposals to cover many segments of the society as well. Although they seem to be politically correct, in the medium term they are going to be politically and economically incorrect. This is mainly because our history has shown the state of Government businesses.The Government should move away from playing the role of a supplier who delivers goods and services to the public. Instead it should focus on playing the role of a facilitator through creating a fair ground for the market to take care of businesses. Lastly, the achievements of the budgetary target are very conservative in terms of numbers. Achievement of these targets by the end of the year depends on a very rigid assumption on how the private sector is going to respond by increasing investment and exports and by generating our growth momentum” Prof. Abeyratne said.  

 

“The Budget doesn’t have anything proposed in much favor of the environment”
- Environmentalist and Attorney 
Jagath Gunawardene  

 

“I have not seen anything positive towards the environment in this Budget. The Budget will only have a very oblique impact on the environment since there isn’t much proposed in favour of the environment” said Environmentalist and Attorney Jagath Gunawardene. “There are things that are proposed with concrete fiscal facilities as well as things that are simply noted in the Budget. If as proposed in the Budget, the Government does allocate Rs. 350 million to encourage solar power in all buildings within the next two years, it would be a positive move in terms of the environment. As for proposing to encourage the carbon trading market, I think we need to tread carefully in that direction” he added.   


 

“Historically Budgets have failed to identify and solve the issues with regard to the transport sector”
- Prof. Amal Kumarage

 


  “Historically, the Budget with regard to the transport sector has failed to deliver anything substantial for the people. Despite large amounts of money being spent on highways, except for a few specific instances by and large the mobility for people has not improved; in fact it has got worse” said Senior Professor at the Department of Transport and Logistics Management, University of Moratuwa Prof. Amal Kumarage. “So historically Budgets have failed to identify the problems and solve the issues with regard to the transport sector and this Budget is no exception. For an instance, according to this Budget heavy expenditure is indicated for expressways where six billion dollars is expected to be spent over the next three years. Also, an LRT is proposed for another four billion dollars.The rest of the transport system is basically not getting even a fraction of this.   


Buses which carry over fifty percent of the commuter population have not been promised anything. These are some of the current transportation crises we have to invest money on for short term, high gain solutions. Sri Lanka does not have a single bus terminal, it does not have modern buses, and it does not have modern bus management systems. There is no money allocated for railway modernization. The funds for such purposes come only through the Asian Development Bank. In that sense, I cannot say that the transport situation by the end of 2017 will be better than what it is now. I can only say that it will be worse. Instead there is a lot of small amounts of money allocated for various things from water transport to three-wheelers to school vans and so on in terms of supplier requirements. This is one of the problems of the transport sector as witnessed in the Budget where to solve problems, money is allocated on the basis of what suppliers of transport and infrastructure manufacturers want.It is not based on what the consumers or commuters of transport would want. Therefore, while the suppliers of transportation services will succeed and make their profit, the person who is using will continue to remain frustrated by not getting what is required by a commuter. So, I think if you analyze the budget in terms of all these impacts, it is clearly evident that this Budget is a continuation of past politics that has failed to address the issues in the transport sector and I think things will gradually get worse than now” Prof. Kumarage added.   


 

 

“The move to replace oil burning vehicles with electric vehicles is going to have a positive effect on the environment”
-Vidura Ralapanawa
-Energy Specialist 

 


 “The introduction of liquefied natural gas (LNG) is a good move. It should have been done sometime ago because the prices of LNG have been going down globally in the last five years. Electricity generated by LNG is far cheaper than producing electricity through coal and is much better for the environment. The government should expedite the LNG terminal,” said Vidura Ralapanawa, a cooperate executive who is an energy specialist.  


“The government is going to bear the interest for 50% of low income households to encourage solar systems being used. But, even with this 50% interest it is still not viable. More steps should be taken to make these systems affordable. Funds have been allocated to install solar panels on all government buildings which is a great move,” he added.  


Referring to the proposal to replace three-wheelers with electric cars he said, “This will reduce pollution. Another option would be to convert three-wheelers to be driven by electricity. The move to replace oil burning vehicles with electric vehicles is going to have a positive effect on the environment and will reduce respiratory illnesses.”  


Speaking about the carbon tax imposed on vehicles he said that the carbon tax should be imposed on the fuel source and not the vehicle. “In this scheme irrespective of whether you drive a little or a lot the same carbon tax should be paid for the vehicle. This is wrong. The second issue is that if a carbon tax is imposed for petroleum it should also be imposed on coal. But the carbon tax is not imposed on coal which is quite absurd. Also, taxes raised from Carbon should be directed to support clean energy development such as solar,” he said.  


 

 

“I believe that more could be allocated for education and the legal system” 
-Geoffrey Alagaratnam- President of the Bar Association of 
Sri Lanka (BASL)

 


   “There are some positive signs in the 2017 budget despite the government getting caught in a debt trap. But some of the matters could have been better thought out and more could be done. Though development may take years I believe that more could be allocated for education and the legal system. Infrastructure development, capacity building of court staff and facilities require a lot of funds. There is a lot to be done if you need to make the system more efficient and expedite cases,” said Geoffrey Alagaratnam, President of the Bar Association of Sri Lanka (BASL)  


Speaking about the minimum penalty he said, “There are a lot of accidents and errant riding so perhaps this is a deterrent. A minimum fine of R.2500 is acceptable to certain types of offences. But can matters like reversing onto the Galle Road be fined with Rs.2500? One can argue that an offence is an offence. I think that the authorities might have to relax it over a period of time and impose it in about two years’ time.”  


For the moment we could, perhaps, have a fine varying between Rs. 1000 and Rs. 2500 and subsequently impose Rs. 2500 as a minimum penalty. We are after all arguing for a society with more law and order,” he added stating that fines have not been revised for the past fifteen years.   
Referring to the proposal to levy a fee when filing a case he said, “It’s not unreasonable to levy a fee when filing a high value money or commercial case. But if it’s a maintenance case, a divorce case, or a fundamental rights case can you ask them to pay a fee to file a case? It’s not right to impose the fee on each and every case. I don’t know how they’re trying to implement it.”  


 

 

“The Government is unfairly pressurising the people searching answers for the economic crisis”
- Sunil Handunetti- JVP MP

 


  “I am completely against this budget. The government is attempting to impose taxes on people so as to respond to the current economic crisis. The government is going to fulfill their promises by taking from the people, and then offering it as the share from the government. For instance, they say ‘public private partnership’. But this is not what’s going to happen. The government is going to ask banks to give this and that. Although banks are governmental they contain investments made by people,” said Sunil Handunetti pointing out that in reality there was no ‘government share’.  


“They have increased the minimum penalty from Rs. 20.00 to Rs.2500 which is not justifiable. When we file a case a stamp fee is levied. Now they’re trying to levy a separate fee, apart from the stamp fee, when filing a case. This is wrong,” he added. He further said such taxes were unjust.  


“Privatization plays a major role in this budget. There is a plan to privatize government offices, businesses, farms. All this shows that the government is unfairly pressurising the people searching answers for the economic crisis,” he said adding that the budget was beneficial to the government.  


 

 

“There are issues pertaining to the standard of teachers, infrastructure facilities for the majority of the schools, the quality of text books and the standards of syllabi” 
- Dr. Nirmal Ranjith Dewasiri- 
President of the Federation of University Teachers’ Association (FUTA)

“We expect the government to address the issues in education. However this has not happened. Funds are needed. But the government says that the funds allocated for this year have not been utilized which has compelled them to reduce the budget allocation. If it has not been utilized it is the shortcoming of the government and the respective minister. It does not mean that funds are not needed,” said Dr. Nirmal Ranjith Dewasiri, President of the Federation of University Teachers’ Association (FUTA)  


“There are seemingly attractive proposals like providing free tabs. What about the cost? When you’re spending you need a proper need assessment and whether that is the priority. As far as I know there is no such assessment. When you spend such massive amounts there are opportunities for people to make money out of them,” he added.  


He also said that there were issues pertaining to the standard of teachers, infrastructure facilities for the majority of the schools, the quality of text books and standards of syllabi to which the government had no systematic approach to address.  
“They are also promoting private universities which is problematic,” he said. 


 

 

“The banks are charging a higher rate since the expense margins are higher”
- Chandra Jayaratne, Former Chairman of the Ceylon Chamber of Commerce

 


   “In analysing the budget I will focus on two key areas. First are the goals of the President to eradicate poverty and living up to the requirements in terms of environmental control. The second is the Prime Minister’s policy statements of last year and this year and his achievement report of the year in office. In this context the main thing we were looking at from the Government was for both parties to have a single vision in building a foundation for the country” said Former Chairman of the Ceylon Chamber of Commerce Chandra Jayaratne.  


“This budget does not signal the two parties coming together which is a critical point. We wanted a joint Government to take hard decisions and resolve pressing issues. In addition there are several things that need to be addressed. The export industry has to be enhanced. There is a need for FDI to come into the country. The debt crisis has to be managed together with inflation, the exchange rate and the interest rate. We have to look at the expectations of the international community and focus on constitutional and judicial reforms.  


There is also a need to recognise international incidents such as ‘Brexit’, issues with the United States of America and managing the IMF and getting back GSP +.The budget hasn’t given signals positive to these issues in terms of leveraging the international community, FDIs, Sri Lankan businesses and civil society and bringing them together.Furthermore there is a lack of progress of the 100 day plan. The Megapolis Act which was crucial to the PM was supposed to be ready by March. Nobody knows how exactly the financial city will play out. How can anyone invest when the signals haven’t come forward from the budget?Even though this budget is much better than the last there is still so much of uncertainty with the biggest problem being the lack of a signal that the two parties are working together. This is very distressing” Jayaratne added.  


When asked about the effect that the 7% interest had on housing loans Jayaratne had this to say. “Initially the rate was 2%. Now the loans are coming through the banking system. The banks are charging a higher rate since the expense margins are higher. Through this poor people will be greatly affected. It will also deter people from raising housing loans and as such the housing industry may be affected. People will also likely get into financial trouble if they are unable to pay back the loans. There was a great benefit that people got from raising housing loans to build houses which they were able to pay back when their salaries increased. This benefit will now be affected” he said.  


 

 

 “Allocations for education, health, and welfare have been slashed”
- Joint Opposition Leader 
Dinesh Gunawardena

 


 “Once again we have been presented with a budget in which the figures will not be fulfilled or achieved. Cost of living will go up. There will be further unemployment as a result of retrenchment. The present foreign exchange and financial crisis will become much more increased and severe where the rupee will start to devalue further. Businessmen, working people, all the investors, and the youth will not believe these figures as they have been shown since the government came to power. Allocations for education, health, and welfare have been slashed. A major problem will emerge as a result. The expenditure of the president and the prime minister has risen while allocations for the other ministries have been reduced. This shows that 2017 is going to be a bleak year for our country and I hope we will not end up like Greece,” said Dinesh Gunawardena, Member of Parliament and former cabinet minister.  


“The government is not listening to the people or the professionals. As a result they are not correcting their mistakes on issues like the bond issue which have to be corrected in order to win the confidence of investors. Expenditure and waste have not been curtailed by the government while they’re asking people to tighten up. Taxes have been imposed right round on all sectors and all sections of society, from the poor worker to the entrepreneur. This does not draw any new incentive. This is the last budget of the government. Next year they will have to say good bye amidst an economic crisis,” he added.


 

“The health expenditure in our country amounts to less than 3.5%” 
-Dr.Jayantha Bandara
- Secretary of All Ceylon Medical Officers’ Union  

 


“In the 2016 budget 174 billion was allocated for health. But the 2017 budget has allocated only about 100 billion. Inflation is higher and yet the allocation is lesser than before. When we compare with other countries the allocation is meager,” said Dr.Jayantha Bandara, the Secretary of the All Ceylon Medical Officers’ Union adding that Sri Lanka was among the 15 countries which allocated the least for health.  


“The World Health Organization(WHO) has newly introduced health indicators among which some are financial health indicators. One of them is the total health expenditure as a percentage of the GDP. The global average of this indicator in 2015 was around 9% from the GDP. In the USA it is 17%. In most countries it is more than 5%. However in our country it is less than 3.5% at the moment. This time it has been further reduced,” he added.   


Explaining further he said that health expenditure included Government expenditure, insurance and out of pocket expenditure. “The health expenditure in our country which amounts to less than 3.5% contains financing from these three categories. As a result the government portion is around 1%,” he said.   


“The second indicator is the out of pocket expenditure. This refers to spending for channelling, drugs, equipments from our own personal account. In our country this amounts to 50% against a global average of 20%. The WHO recommends that it should be less than 30% to maintain an efficient health system. This shows that we are in a very pathetic situation,” he said.   


 “The next indicator is the per head expenditure. As the allocation has reduced the per head expenditure will also reduce. For a country to go ahead there should be a good human capital. This does not refer to population. People should be well educated and healthy. They are the human capital. Usually the government involvement in the health sector increases. However in our country the reverse has occurred,” he added. 


 

“None of the budgets during the last three decades had been women oriented or people’s budgets” 
-Dr. Nimalka Fernando- President of the International Movement Against All Forms of Discrimination and Racism (IMADR) 

 


 “In general if you look at all the budgets in Sri Lanka from the time the women’s ministry was established in 1993, the women’s ministry only received 0.02% from the budget. Though we can say that women reap benefits from the education and health allocations etc, all put together have not assisted women who are unskilled. The budgets of Sri Lanka have failed to recognize that there is a large category of unskilled women, but seem to be rolling eyes by selling this unskilled labour as migrant workers,” said Dr. Nimalka Fernando, lawyer, women’s rights activist and President of the International Movement Against All Forms of Discrimination and Racism (IMADR) and the Women’s Forum for Peace in Sri Lanka.  


“I have not seen any proposals for the last decade in favour of boosting production of small enterprises where a large number of women are involved in. None of the budgets during the last three decades had been women oriented or people’s budgets. I am concerned with regard to the proposal to change ‘stringent and archaic labour laws in the country.’ This could lead to deregulation. While affirming the need to create new jobs it is better to create an environment to promote self-employment rather than touching the very healthy labour laws we have in practice in Sri Lanka,” she added.  


She further stated that the amount allocated for the women’s ministry in the 2017 budget was insufficient. “Even in this budget I do not see that the allocation for the women’s ministry has increased beyond 0.03%. In terms of the rupee value this cannot be a sufficient amount. My study over the women’s ministry budget over the past year tell me that 80% of this 0.03% goes as recurrent expenditure. Only 20% get allocated for projects that would promote progress of women or that would address empowerment of women, like for training,” she added.  


 

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