Decisions taken by a government have direct impact on the economy of that particular country, as they prepare the environment in which business activities are operated.
The annual Budget among other economic decisions taken by the government is the most significant plan, which of course decides on the big picture of the economy.
The new government presented its maiden Budget recently focusing on attracting investments, creating employment opportunities and eventually achieving economic prosperity that the public seeks. Furthermore, the government has introduced some tax reforms to enhance revenue, while encouraging some other sectors.
It is normal for us to see people criticizing as well as commending the Budget, after it is presented in Parliament. Generally, what people expect the government is to alleviate the living cost, introducing more concessions. However, they can be considered short-term benefits, which have a small contribution towards achieving economic development. That is why going beyond the traditional expectations placed on a Budget people must try to understand how the Budget will contribute to achieve the big picture of the economy, alleviating poverty.
It can be observed that the Budget has highlighted the importance of some key sectors in the economy and encouraged those sectors providing concessions in various ways. Sectors such as small and medium-sized enterprises (SMEs), tourism, science and innovation, which are really capable of playing a leading role, have been given a pride of place in the Budget, while other major industries such as agriculture, construction and plantation have been further strengthened. Hence, it is important to have a closer look at them with a different perspective.
The priority for SMEs rather than big companies should be appreciated. SMEs can be considered the backbone of the economy, as it creates more job opportunities and above all, a possibility of being developed up to the level of big companies. Some SMEs are dairy industry, horticulture, floriculture, food industry, fruit and vegetable, inland fishing, beauty culture, ornamental fish, etc.
As defined by the Central Bank of Sri Lanka, they are enterprises that have an annual turnover of less than Rs.600 million and borrowings below Rs.200 million. These have been struggling to find solutions to a number of issues like access to the latest technology, market information and especially finance. It is needless to say that banks have avoided providing SMEs with loans, mainly because of high risk involved in the sector. The Budget has suggested SMEs Credit Guarantee Scheme in 2016 with Rs.500 million contributed by the government as initial capital together with the assistance of selected financial institutions.
This will ensure financial assistance for young entrepreneurs. The creation of incubators for SMEs not by splitting or reconstruction of an existing SME by investing in designated areas will be entitled to 50 percent reduction of the tax payable on profits of such activity for a period of three years. Nevertheless, there should be a plan to make those engaged in SMEs armed with management skills as well.
As soon as war was over, an industry that was stagnant over the years joined the economy. It was nothing other than the tourism industry.
This is actually an area which has tremendous possibilities to be developed as a significant contributor to the economy. The lack of professionalism is a huge problem that the tourism industry has to deal with. The majority of those engaged in the industry are not professionally trained but have informal understanding about daily activities.
This to a larger extent prevents the industry from progressing. This is why a three-month standard training course was introduced. Fifty percent of the course fee subject to a maximum of 15,000 will be borne by the government. Moreover, it is targeted to train a minimum of 3,000 youth every quarter, creating professionals for the industry. Tax benefits in line with the triple deduction made available for skilled development are provided for the private hotels willing to establish training schools.
Medical tourism is an area that drew a poor attention in the past but could have been a marketable asset in the industry, if properly advertised. It has been highlighted in the Budget. Attention has been paid to get all the hotels registered in the country, as 60 percent of the hotels operating in the country are not registered, creating problems for regulating them and assuring quality and standard service.
Investment is an important element in any economy, as it results in employments, production and then growth.
The country has been trying to attract more and more foreign direct investment (FDI) because it is believed that it is the easiest way to find capital for investing in a country.
In the past, there were some barriers for investment. Removing the tax imposed on the leasing of land to foreigners is commendable and will surely show positive signs in attracting FDI. Moreover, the income from dividends on investment made by non-citizens and foreign companies in listed shares through inward remittances will be exempted from income tax. It will encourage foreigners to invest in the Sri Lankan share market.
Since highly environmentally-sensitive industries will be facilitated to operate in specially designated areas such as Puttalam, Hambantota and Kilinochchi, problems that emerged in Rathupaswala, will not arise in the future. Even if these are commendable steps, political stability is a must in this respect. It was actually hoped to review three key sectors, which were specifically highlighted in the Budget. There are many more commendable actions proposed in it. However, even if the proposal to impose a heavy tax on the price of vehicles comes under criticisms, it seems that that kind of action is in dire need for controlling huge traffic congestions which largely consume the time of passengers. Finally, what has to be noted is that there is no perfect Budget in the history.
(Amila Muthukutti holds a Bachelor’s degree in Economics from the University of Colombo and can be reached at [email protected])