The council of the National Chamber of Exporters of Sri Lanka (NCE), which comprises sectoral heads representing different product and service sectors, has deliberated on the issues of concern to the export sector and also their impact on the cost of doing business. The issues discussed highlight the following:
Inconsistency in policies and ad hoc policy changes
Concern has been expressed regarding the inconsistency and clarity of macroeconomic policies, which impact the confidence of entrepreneurs and investors to engage in business and their adverse impacts in the medium term. Further, ad hoc policy change announcements from time to time without consulting the relevant stakeholders create confusion and uncertainty. For example, the recent changes in regard to direct and indirect taxes is a case in point.
While the prime minister announced in the earlier medium-term economic policy statement that the ratio of direct taxes and indirect taxes would be improved to 60:40, what was subsequently implemented by the Finance Ministry was the reverse, which further increases the proportion of indirect taxes due to change in the value-added tax (VAT) rate. The government intervention in private sector wages is another example. At present, there is no clear-cut trade policy, taxation policy and wage policy.
Currently, there is a good opportunity for the two main political parties in the government to agree on the core national policies related to the above and other areas which will ensure long-term sustainability of businesses and also create confidence in the minds of prospective investors to attract foreign direct investments as well.
Increase of the corporate tax of export ventures
The budget proposals for 2016 increased the corporate tax of export ventures from 12 percent to 17.5 percent. Additionally, the recent increase of VAT from 12 percent to 15 percent is considered to affect the cost of certain inputs, although the export enterprises are zero rated in regard to VAT. This is due to the fact that certain suppliers of inputs to exporters charge VAT although they are not registered for VAT, while others are not registered for simplified value-added tax (SVAT). Proper tax administration would ensure that such suppliers are included in the tax net to enable increase of government revenue and also reduce the cost of production of exporters.
Requirement to repatriate export proceeds within 90 days
Although the recent announcement regarding the requirement to repatriate export proceeds within 90 days by all enterprises, including the Board of Investment (BoI) companies, ensures a level playing field, some exporters have expressed concern regarding the sudden announcement, without prior consultation, since they have entered into contractual arrangements with buyers to provide credit facilities beyond 90 days in order to be competitive in their transactions vis-a-vis their competitors.
At a recent discussion the Finance Minister had with the members of the council of the chamber it had been stated that the exporters could obtain a Sri Lanka Export Credit Insurance Corporation (SLECIC) insurance for any extended period beyond 90 days and use it as a guarantee to obtain the Central Bank approval. However, it is understood that SLECIC is not in a position to guarantee payments of buyers in regard to extended terms although it is in a position to issue cover for non-payment of buyers under contract following proper assessment of such buyers.
Government intervention in wages of private sector employees
Legislation that has been enacted based on the budget proposals for 2016 requires private sector employers to pay an additional Rs.2,500 per mensem to each employee. The sudden intervention by the state has created uncertainty among the private sector employers who request prior consultation in regard to issues of this nature to avoid uncertainty related to the viability of business and their performance.
It has been pointed out that many private sector employers already pay their employees higher wages and also provide additional benefits over and above the minimum that is payable under the relevant Wages Ordinance regulations. In this background, the imposition of additional ad hoc wage increases will have a bearing on the increase of prices of local products and thereby increase the ‘cost of living’ of workers, which will compel them to demand additional financial benefits from the employers, adding to the cost of
Increase in annual licence fee payable by companies to Registrar of Companies
According to a circular issued by the Registrar of Companies Department implementing a budget proposal for 2016, the private companies are required to pay Rs.60,000 per annum as a registration levy, while the public quoted companies are required to pay Rs.500,000 per annum and other companies Rs.100,000 per annum. Concerns have been expressed that the imposition of such high fees would dampen company formation specially by small and medium enterprise (SME) entrepreneurs
at a time when the government desires to boost the creation of enterprises for
Exorbitant increases of port entry charges by Sri Lanka Ports Authority
The Sri Lanka Ports Authority (SLPA) has increased the port entry charges for light and heavy vehicle ranging from 1,667 percent to 2833 percent from the current level. Additionally, the entry permit charges for people have been increased, whereas in other countries with stronger economies, such as Singapore and even India, impose nominal charges to facilitate business. As such, sudden exorbitant increases of this nature need to be reconsidered since the export enterprises in particular and businesses in general engage in transaction with the port almost on a daily basis; there increases will have an adverse bearing on their
Relatively high cost of energy
In spite of the substantial decrees of oil prices in the international market place, the price of fuel remains relatively high compared to the prices that prevail in competitor countries. Since the cost of fuel has a direct bearing on the cost of generation of electricity as well, there is an overall negative impact on the competitiveness of export enterprises.
In this context, since the cost of fuel in the international market place fluctuates from time to time, it is desirable to have a suitable formula, which would link the sale prices of local fuel to the prices which prevail in the international market place, to ensure predictability of cost of energy.
The chamber trusts the above will engage the attention of the concerned authorities in formulating the future government policy.