NCCSL President Lal De Alwis (extreme left) speaks on the benefits of the "highly favourable" Budget yesterday at the NCCSL auditorium. Also present from left: Senior Deputy President Asoka Hettige, Deputy President Sunil Wijesinghe, Chairman of Committee on Banking, Finance and Insurance H.A. Ariyaratne - Pic by Upul Abeysekara
Concerns over private sector pension scheme, tax free agriculture and increase in VAT input
By Sunimalee Dias
With a "highly favourable" long term set of Budget proposals, the National Chamber of Commerce (NCCSL) yesterday said Budget 2011 was acceptable as it provided relief and incentives for future development.
However, the chamber expressed concerns over the newly-introduced pension scheme, tax free for agriculture sector and the increase in VAT input credit.
NCCSL President Lal De Alwis addressing the media pointed out that next year would be "very crucial" with all proposals acceptable to the business community.
He noted that the type of taxation and relief measures were welcome with 2011 projected to be good for the country.
The Government was said to have taken due consideration of the Joint Business Forum proposals with most suggestions having been met.
The Budget was formed on the thrust areas of exports, tourism, human development, agriculture and ICT - the key elements in making the country the 'Wonder of Asia'.
The Budget's highlights on the income tax were taken up for discussion where NCCSL Senior Deputy President Asoka Hettige noted that the imposing of a cess on non exports and value added raw material would bring in less revenue. However, the removal of income taxes for garments, rubber and leather exports was considered to be an attempt by the Government to provide the necessary boost to these industries.
The quantum of funds set out for research and development were specifically commended as this would encourage firms to provide required foreign travel and foreign training, expected to give a significant boost to local companies and exposure to overseas development for Sri Lankan employees.
In this respect the double deduction for R&D was termed essential in going forward as the companies would be capable of doing much more.
Previously, necessary commitment from universities was hard to obtain due to the vast brain drain. But with these changes set out, such a brain drain is likely to reduce, the business community believed.
The "comprehensive Budget" that has tackled all industries has notably removed some of the critical irritants such as multiple taxes and looked at positively focusing on long term development, the Chamber's Deputy President Sunil Wijesinghe said.
However, a notable area of concern was the pension scheme, the mechanics of which need to be worked out although it is acceptable in principle.
He noted that the employees' pension scheme was discussed prior to the Budget at the National Labour Advisory Council (NLAC) but during that stage they had not taken up the call for the introduction of a 2% addition by employees and employers. Wijesinghe noted this had to be worked out on a tripartite basis with the consensus of all.
He also expressed concerns over the proposal for the gratuity transfer to the fund.
Issues pertaining to GSP+ continue to be a reality that are yet to be addressed by the Government, it was pointed out. The new Budget has not done much to assist this sector in this respect, although the reduction of duties and taxes were noted to provide some relief to the exporters.
The 8% tax on electricity was another area of concern, although it was observed that should the rates continue to remain stable, it would not pose a major problem.
NCCSL Chairman of the Committee on Banking, Finance and Insurance H.A. Ariyaratne said that in the banking sector, the previous high tax rate was reflected in the interest rate and impacted on the SMEs.
However, under the new Budget proposals, it is possible to expect the SMEs to receive funds at relatively low interest rates.
Moreover, the banks would now request funds to be invested in a separate account for long term lending purposes.
The banks are currently seeing an increased number of proposals and there is a growing demand for project financing from the private sector and the 25% growth in private sector lending is likely to be met.
In addition, the business community expressed concerns over the tax free status of the agriculture sector to be continued for a further period to enable the receipt of benefits.
Commenting on the VAT input credit that has been increased from 85% to 100%, it was pointed out that the balance of excess VAT input would not be allowed to be set off against other tax liabilities. Instead it would be allowed as a write-off for four years, which would mean the refund is refused.