Private sector leaders’ initial take on Budget 2012
By Marianne David, Dinali Goonewardene, Cheranka Mendis, Cassandra Mascarenhas, Devin Jayasundera and Chamitha Kuruppu
Brandix CEO Ashroff Omar
Overall, we are glad that all that we had asked for, having worked with the Treasury before the Budget, has come in. There are slight tweaks from our proposals to what has been given, but overall we are delighted with the result.
Tourist Hotels Association President Anura Lokuhetty
It is a very good budget. I believe that with peace the Government has realised the potential for developing tourism in Sri Lanka. Encouragement has been given to reduce taxes of vehicles by 50%. Some hotels have their own travel desk. It is not enough to provide food and accommodation, transport is also important.
The country’s education must be geared to handle tourism as seen by moves to improve regional schools and train workers. With the goal of 2.5 million tourists, a need will be created for 350,000 additional jobs and other industries such as cottage industries will benefit.
I see tourism as the best industry through which to develop Sri Lanka’s economy. Countries such as Dubai will see oil diminish and the next industry to promote is tourism. Sri Lanka is rich in culture, history, etc., and an ideal tourist destination.
Gajma and Co. Partner N.R. Gajendran
The President gave a fantastic statement at the conclusion of the Budget speech, saying that this is a democracy and there is a need for a strong opposition which should unite. This is necessary for the country.
I have concerns about the rupee devaluation and whether monetary policies are regulated by the Budget. This is clearly contrary to what the Central Bank wanted. The Central Bank wanted to maintain the rupee and multilateral agencies wanted a freer rupee. Every country manages its currency, China for example.
Exports didn’t do too badly and now there will be overnight depreciation and the Central Bank, given a free hand, may not have made this change. Now there is a need to buy foreign currency and consequently the trade deficit can go up.
If there is no investment in one year, it is proposed to take back land. There are projects that don’t take off for two years. The needs and aspirations of people have changed. Eighty per cent of land in Sri Lanka belongs to the Government. There has been no focus on Foreign Direct Investment, which is not flowing in. Investment of 32% to 40% is necessary to maintain GDP at 8%.
HNB MD/CEO Rajendra Theagarajah
Overall the Budget features more benefits for SMEs, tourism, IT, research and development and domestic value addition, which is consistent with the national vision. Banks would benefit from a five-year tax holiday for remittance by Sri Lankans by way of the increased NRFC base. The 24% tax rate for bank branches exclusively doing development banking will no doubt be a boost for encouraging development banking.
The 10% pay increment in the State sector should not be at the expense of neglecting productivity improvement in the sector. With regard to the 3% depreciation of the rupee, it will certainly bring relief to exporters, but they will only be able to reap the benefits of this if it is equally supported by increasing productivity in the exports sector.
HVA Foods Chairman Rohan Fernando
What I find somewhat positive is the depreciation of the rupee, which is very welcome. A lot of exporters were losing money on the artificially-strong rupee. I also feel that they should not have increased duties, especially on vehicles, because now we are opening new road networks. When you develop on that side and then put brakes on the other side calling it luxury, that is not a very progressive thing. Tinkering on tax of vehicles is not a very good strategy.
LOLC Group Managing Director/CEO Kapila Jayawardena
I have not read the proposals in detail yet, however basically it appears to be a reasonable Budget.
Chamber of Construction Industry President Surath Wickramasinghe
As far as the construction industry is concerned, the Budget is full of construction work, with infrastructure happening all over the country, which is a good thing, including plans to have airports in different parts of the country in addition to the expansion of the BIA and also Mattala. The 50,000 houses for the underserved population and new hospitals projects and redevelopment of the General Hospital and other educational institutions is also construction-industry related.
What we would like is for 50 to 75 per cent of this work to go to private consultants and contractors. If they get foreign consultants and contractors to do the work, there will be no benefit to the local industry. They have devalued the rupee by 3%, which is not very healthy, because construction costs will go up since nearly 60-70% of material is imported. That is something that will affect the industry.
Regarding land, this is something that the chamber has been agitating for, for a long time. The Government is saying that it is going to give land on a 99-year lease and also that the basis for giving the land will be on the Government valuer’s rate. This is well and good, but there is no point just giving the land without the requirements for development. If they want to fast-track, all the preliminary clearances must be given, else it will take another two years to get the approvals from the various agencies. If we have to fast-track, all the approvals must be given to the client like they do in other countries so that they can take a decision very fast and proceed.
Going back to the land, when it is being sold to developers, the Government should request the payment on a staggered basis, without asking for all the money upfront.
Then the developer will have no money to develop.
That is another important factor that should be taken into consideration to encourage investment.
What I didn’t see the President mention is private-public partnerships. That is a vital aspect. Particularly with regard to urban regeneration of large scale projects in the city, this can only be implemented through a PPP process. I didn’t see anything about that.
Independent Economist W.A. Wijewardena
I cannot comment on the overall Budget, however allowing more flexibility to the exchange rate by 3% immediately is a welcome sign.
However, given that the Indian rupee has depreciated by about 19% so far during the last few months, this kind of flexibility may not be sufficient. There will still be pressure for the Sri Lankan rupee to move downwards.
Chemanex Managing Director/CEO Preethi Jayawardena
The devaluation of the rupee by 3% is a very positive sign. The high value of the rupee that existed was a huge problem for exporters.
Exporting has become very fiercely competitive and this is a welcome sign for the growth of exports. China has kept the yen value low and this has enabled it to be extremely competitive in exports.
Coconut Growers’ Association President Anton Fernando
The Budget seems to be favourable for the plantation sector and the proposed cess tax on coconut oil substitutes such as palm oil and vegetable oil will discourage imports and increase the demand for coconut oil.
EDB Chairman Janaka Rathnayake
From the exporters’ point of view, the devaluation of the rupee by 3% is a welcome move, one which has been requested by exporters for some time. This would encourage exports and discourage imports as the devaluation will result in imports being expensive, which could kill the demand for it. The move will also help reduce the balance of payments, which would work well for the country both in the short run and the long run.
SLASSCOM Chairman Sujiva Dewaraja
From what I have heard, this year’s Budget does not have anything directly impacting the IT/BPO sector. However the fact that the exchange rate will be allowed to depreciate by three per cent will benefit all exporters, including the IT/BPO sector – this is so far the only thing I can comment on as of now until we can study the proposals in detail.
Ceybank Unit Trust CEO Chithra Sathkumara
We have submitted proposals and are happy that they have been incorporated.
There was ambiguity on profits and income on redemption of units, which is exempt from tax. Value Added Tax on financial services has also been clarified.
Acuity Stockbrokers CEO Deva Ellepola
The depreciation of the rupee should help the export-based companies, since it is something the exporters have asked for.
If the import content is high, the impact will be neutralised.
