Workers And TUs Eyeing Budget 2016

• Budget 2016 A Challenge?

By Hasitha Ayeshmantha

After first coming to power in January alongside President Maithripala Sirisena’s ascension, the new government introduced the ‘Interim Budget 2015’, which announced the price reduction of certain essential goods and commodities.

Emphasising on the expected outcome of the next Budget, Janatha Vimukthi Peramuna (JVP) Politburo member, and President of the National Trade Union Centre (NTUC), K. D. Lalkantha, expressed a lack of confidence in the ‘Blue-Green’ government’s Budget.

Speaking to The Sunday Leader, Lalkantha observed that the JVP has lost faith in the coalition government, and does not believe that the outcome of the Budget 2016 will be a preferable one for the general public. He added that the government has lost the initiative and has made major blunders when establishing recent foreign trade alliances.

Elaborating on his point, Lalkantha said that the rubber industry of the country is already seeing red-lights while the new government was unable to establish a certified price for tea and paddy as promised during the general election.

Lalkantha quoted the given three instances as signs of the new government’s inability to deliver on the promises made and also as a negative aspect of the country’s present economy. When digging further into the former parliamentarian’s allegations, it was also put forward that the issues of the state sector still hangs in the balance while value of the Sri Lankan rupee keeps on depreciating.

 

Optimism

Lalkantha also expressed optimism over the fact that the government will be able to provide relief through the 2016 Budget  by saying that the country’s economy cannot afford to take a wrong turn at this juncture.

However, the former Parliamentarian strongly emphasised that the people should assert more pressure on the government to provide relief for the common people, and to address the immediate issues, such as unemployment, state sector issues and depreciation of the rupee.

Meanwhile, a recent statement by the Ministry of Finance highlighted the fact that the Appropriation Bill for the Budget – 2016 has been approved by the Cabinet of Ministers, and that the first reading of the Budget 2016 is scheduled to be tabled in Parliament on October 23. Following that, the second reading of the Budget will be made by the Minister of Finance, Ravi Karunanayake on November 20, in Parliament, where he will announce the measures that have been earmarked to bridge the gap between the revenue and expenditure.

Based on the Medium term Budgetary framework 2016-2018 and policy framework and priorities considered in drafting budget estimates for 2016, the General treasury has conducted budget discussions with the ministries and Provincial Councils. Accordingly, budgetary provisions have been made taking into consideration of the total resource envelop available in the medium term 2016-2018.

The expenditure provisions covered in the Appropriation Bill have been estimated at Rs. 1,941,450 million which consists of Rs. 1,314,971 million for recurrent expenditure and Rs. 626, 479 million for capital expenditure. In addition, provisions have been made under special laws to service public debt and payment of widows and pension along with other welfare measures amounting to Rs. 1,191,903 million. The provision requirement for advance Account Activities is Rs 5,000 million. Hence, the total expenditure provision for 2016 without budget proposals to be introduced on November 20th at the Second reading of the budget is estimated at Rs 3,138,353 million.

The revenue at the prevailing rate structure and foreign grants has been estimated to be around Rs. 1,789,230 million. The total borrowing requirement from both foreign and domestic sources will be Rs 1,349,123 million.

Speaking to The Sunday Leader, renowned economist, Dr. Sirimal Abeyratne, said that the announcement of the Budget of Sri Lanka has become a routine process and, therefore, the Budget should be drafted within the context of a reform process.

 

Steep hill to climb

He added that one government after the other that comes into power has looked to continue the routine process, rather than implementing policy reforms.

According to Dr. Abeyratne the Budget should not be addressed in a way to satisfy the popular demand, but address the major concerns that the country faces at present, under the given pretext, and also he added that the government should not under any circumstances try to match the revenue to the expenditure, which in this case, is quite a steep hill to climb.

He suggests that instead of trying to match revenue to expenditure, the government should focus more on reinstating investor confidence in Sri Lanka so that the spotlight is back on generating more revenue rather than trying to make a match.

However, while mentioning that the Budget is not the appropriate medium to introduce new reforms, he suggested that a much more favourable outcome could be achieved if the government introduces the Budget through the context of a reform process. The economist also took time to criticise the new government’s reform process by claiming that the government has spared much time into addressing ‘petty issues’ rather than diverting sufficient attention to the much more severe matters.

Dr. Abeyratne firmly believes that there are three main areas that have been overlooked in the past, by the previous governments. They are, establishing business confidence, and investor confidence, budget management, and finally, managing and improving external finance.

He added that if the new government could focus on these three particular areas when announcing their next Budget, it would bring forth a much more desired outcome, especially to the financial sector of the country.

However, at a previous encounter with The Sunday Leader, Finance Minister, Ravi Karunanayake, said that the next Budget of the country will focus on capitalising on the ‘Macro-policies’.

The Finance Minister said that with the interim budget said that with the interim budget delivering the goods as promised in the elections manifesto of then Common Candidate Maithripala Sirisena, the budget will focus the spotlight on achieving the targeted economic growth through harnessing the macro-policies and implementing solid policy reforms.

He added that strengthening the country’s business sector while securing the trust of the people is also another agenda that will be focused in the next budget.

Furthermore, giving out a statement to The Sunday Leader, the Lanka Confectionery Manufacturers Association said that it is vital that Sri Lanka reaches the next level, then the local industry should be strengthened and it needs to increase the country’s exports.

The LCMA presented a document highlighting the important issues that should be addressed during the next Budget in order to ensure the wellbeing of the local manufacturing and exports industries.

 

Issues

The cost of some raw materials used by the local confectionery manufacturers are the highest in the region. This is due to high import levies. For example, the amount of import levies charged for, when powder is higher than the CIF price.

There are raw materials such as Maize Grits, Specialised Fats, which are not manufactured in Sri Lanka, and superior quality packaging material, which improve the shelf life of the products, as required by the buyers in other countries, with high import levies increasing our input costs.

As per the current regulations, only duty can be claimed when local manufacturers export their products. Subsequently, many levies have been introduced and levied at the point of clearing, such as Cess, PAL, NBT and VAT. As for sugar, there is no duty, but a special commodity levy, and all the above-mentioned are not claimable. If our products are to be competitive, then the government should give rebates for all import levies, and not only for the duty component.

Very rare

It is very rare that importers buy a container load of products from one manufacturer but they buy many products from different manufacturers and consolidate. Therefore, it proposes the current regulations to be amended, permitting the exporters to claim the import levies that have been paid at the point of importation, in order for the products of small and medium scale manufacturers to be competitive. The TEEP scheme—the mechanism that the government proposed is not practical for small and medium scale manufacturers.

For many years, a cess has been charged for imported raw materials, which are not manufactured in Sri Lanka. Specialised fats, Whey Powder, are examples of the same. As per the Sri Lanka Export Development Act No 40 of 1979, this cess is being credited to the Export Development Fund (Ref section 13 (d) under Part IV Finance). It suggests that the EDB should have a database of export quality products (e.g. with SLSI/SGS inputs) and help identify potential markets playing a more proactive role. With its stakeholders EDB can build a brand for ‘Sri Lankan Confectionery’. They could use the funds they have collected in the form of cess from ingredients of our raw materials and packaging materials.

Along with the list of issues, the Lanka Confectionary Manufacturers’ Association also put forward a list of suggestions that they believe will aid to tackle this situation.

 

Suggestions

The Satellite and Cable TV operators in Sri Lanka carry advertisements for products that are mainly made in India. Many of these products are in respect of international brands, which compete with our Sri Lankan brands. The government on this makes no charge whatsoever. However, if a local manufacturer wants to advertise, 50 per cent of the advertising expenditure is added back to the tax computations. We request the government to charge a tax minimum of Rs 25,000/- per minute or on a pro rate basis from satellite and cable TVC operators or the advertisement to be blocked.  This is technically possible. For all imported products, which come under the import inspection scheme, e.g. Imports (Standardisation and Quality Control) Regulations 2013 on January 8, 2014, the Testing body/(s) can charge per item like countries such as India do. If SLSI alone cannot handle this, then other accredited laboratories can carry out the tests. This not only will generate additional revenue but will be a source of employment for our Science graduates and students. Further this could be used as an incubator to carry out R&D activities.

All manufacturers should pay taxes irrespective of their turnovers as otherwise it would lead to malpractices.

Propose that the Sri Lanka Customs calculate the import duty based on the Retail Price instead of the CIF price for products which the local industry/government suspects could under invoiced. This way the government can increase its revenue. This is being practiced in India. When this matter was brought up with the Treasury officials they have informed that it is against the WTO regulations. However, cannot be an issue and is in line with the directives given by the Treasury on import of vehicles.

Finally, in 2012, as the LCMA had completed 20 years of their existence they considered it as an obligation to make available the necessary nutrition to the elderly population requires at an affordable price. The Association placed this case before the government. The association has informed that this could be done by creating a separate Customs H.S. Code which, like the importation of medicines, must necessitate approval by the Ministry of Health. This was the safeguarding process initiated by the LCMA.