Ravi K justifies Interim Budget measures

Sunday, March 8, 2015 - www.ft.lk

From left: Ernst & Young Partner Duminda Hulangamuwa, Tourism Development Authority Chairman Paddy Withana, CMA Vice President M.B. Ismail, CMA President Prof. Lakshman R. Watawala, Finance Minister Ravi Karunanayake, NDB Investment Banking CEO Vajira Kulatilaka, Institute of Policy Studies Executive Director Dr. Saman Kelegama and Gajma & Co. Senior Partner N.R. Gajendran

By Charumini de Silva
The Institute of Certified Management Accountants of Sri Lanka (CMA), the national professional management accounting body in the country, recently held a seminar on ‘Interim Budget Highlights 2015 – Impact on Business’.
The seminar highlighted the important aspects of Interim Budget 2015 and its impact on business and the economy. The keynote speaker of the event was Finance Minister Ravi Karunanayake. The seminar was followed by a Q&A session with the Minister and two panel discussions.
The panel discussions were conducted with the participation of senior Government officials, business leaders, academics and experts from the sectors of taxation, business, power and energy, transport and highways, telecommunication, stock market, tourism, banking and finance, agriculture, salaries and wages.
Explaining ‘Robin Hood Budget’
Utilising the forum as a platform to explain the measures introduced by the ‘Robin Hood Budget,’ Finance Minister Ravi Karunanayake outlined the Budget proposals and their impact on the economy, business and the people.
The Government aims spurring manufacturing-led growth with more focus on exports, public-private partnerships, Foreign Direct Investments and new job opportunities.
Noting that the existing consumption-led growth strategy was not sustainable, Karunanayake stressed the significance of shifting to a manufacturing-led economic growth in order to increase competition, productivity and innovation.
He said the public sector wage increase and reduction in commodity prices had boosted household income.
According to research conducted by University of Colombo, a middle class family can save up to Rs. 7,500 on average with the reduction of commodity prices and a salary increase of Rs. 10,000 for Government servants. In total this brings additional revenue of Rs. 640 billion back to the economy to spend.
Elaborating further, the Minister said this additional revenue would result in ripple effects the in economy, which would drive increased consumer spending, in turn spurring business confidence by expanding the economy.

Relief to consumers
Karunanayake said urgent steps would be taken to ensure that relief granted by the mini budget trickles down to consumers. He added that the cancellation of interest on pawned gold jewellery would be effective from 1 April and pledged that the Government would bring down the number of taxes and levies to 15 by 2016. At present there are 37 taxes and levies, which are highly complex.
Noting that cost reduction in the public sector is imperative, Karunanayake said the nation’s real debt burden, including contingent liabilities, was over Rs. 9 trillion as opposed to the previous estimate of Rs. 7 trillion. Hence, he said that they would reveal the real figures of the state of the economy by next week.
“We got this in the Budget that was put in place in 2014 November, which was brought by former President Mahinda Rajapaksa, so we didn’t want to make a full change of all that was going on. We took certain elements where costs were exorbitant and made reductions. We ensured as a policy not to burden the common people who put their faith in President Maithripala Sirisena, Ranil Wickremesinghe and our Government. We want to deliver every single thing that we have mentioned within the 100 days.”
Lack of professionalism
Karunanayake also criticised the behaviour of some of the professional institutes, stating it was shameful that some institutes had not done what was expected of them.
“We want professionals to be professional and not curry favour from the Government. Let us have a new approach where people will respect the profession,” he added.
“The United National Party was considered the darling of the businessmen, but we saw that the private sector did not play its role during the past 12 years. Thereby, we have now repositioned ourselves to put the economy in form,” he said.
Eradicating corruption
Karunanayake assured that the Government would streamline the investment process while getting rid of unnecessary bureaucratic obstacles.
“We want to eradicate corruption from our systems, not mitigate. Already there are many investors willing to invest in Sri Lanka and I assure you that there is no necessity to go behind officials to get approval. If an investor comes up with an investment plan, we will make sure that you get the approval within 100 days,” he stated.
“We are a very responsible Government and we want the economy to move not in the hands of a few; we want to open it, we want a clean operation to move forward. That’s the promise our President, our Prime Minister and I gave in Parliament on 29 January. The Government is very keen to ensure such improvements.”
IMF and World Bank support
The International Monetary Fund (IMF) and the World Bank has pledged its support to the Government with a lending model for ending poverty and promoting growth. “We are getting three to four times more support than we used to get in the past from them. Thus, it is up to us to ensure that we walk the talk,” he noted.
Excise and Customs revenue
Minister also said that the Department of Excise was able to collect Rs. 4 billion in the last 20 days alone compared to what the previous regime had collected in the last year. Customs revenue too has increased to Rs. 12 billion during the past 12 months.
“The previous regime collected Rs. 4 billion as excise duty for the whole year but we have been able to collect that in one month. This is historic. By the end of the year the Government will be in a position to collect Rs. 48 billion or more.
“With good governance coming into the system you will see that revenues are flowing back into the system. This is just the start, I’m sure that the real income that should have come to the economy will bounce back to the system in the near future,” he added.
Budget deficit
Karunanayake asserted that the most important element in this Budget was that everything had been done without adding to the budget deficit.
“We inherited a budget deficit which was supposed to be Rs. 521 billion, 4.6% of GDP. We, after doing every single thing, have managed to reduce the budget deficit to Rs. 494 billion and 4.4% of GDP. That has stunned the present Opposition, but we have done not just an arithmetic gimmick that was there, but genuinely cut down certain capital costs which are corrupt in nature, which were unwanted. We have done certain financial considerations, so that we can show that we are financially responsible and that’s the way we will go.”

Question and Answer session

Q: Will the Super Gain Tax be applicable to BOI companies?
A: BOI companies that have exhausted their tax holidays will fall into it. The rest of it won’t because we don’t want to discourage them in any way by saying that we will collect ‘x’ amount of figure.

Q: You had a Rs. 50 million target from the Super Gain Tax, will inflows exceed or fall short?
A: No, we are well ahead of it. Almost 98% of companies have voluntarily come forward and I must thank all of them for their confidence and supporting us in this endeavour. I understand that it is difficult for them, but I assure you that it is a one-off tax and we will stick to that.

Q: Will the implementation of new taxes scare away FDIs?
A: What were the FDIs that were there? All Government-oriented FDIs were there. The previous regime was just using taxpayers’ money to pay off high interest rates. There were only a very few genuine FDIs in the country and that is something we need to correct. Today we have shown that is the only way to come forward. There are many investors eager to invest in the country, because our intention is to eradicate corruption and not to minimise. There will be no start-up costs of 15% to 20% involved, like it used to be. If you come up with an investment plan, we will ensure that you will get approval within 100 days’ time.

Q: How will you identify those who have to pay Super Gain Tax but have not filed income tax returns?
A: Don’t worry, we will definitely go after those who haven’t paid. At present there are 37 taxes and levies, which are highly complex. We are looking forward to bring down the number of taxes to 15 by 2016. Please give us the highest compliance on the lower tax systems because we have to encourage you all to pay your taxes on time.

Q: Following the International Monetary Fund (IMF) and World Bank meetings, what specific support has the two institutes given Sri Lanka and at what cost?
A: The confidence placed in our new Government is phenomenal. They said that we have no need for BOP support, but they promised to support us as much as they could. If anyone tries to manipulate the run, because the bonds and all were structured previously, there were people who could move out. We are comforted that such a cushion is being funded by them. The World Bank wants absolution. They do know that we want finance discipline. Without any condition, they have given us three to four times the normal amount; but we must ensure that it is well spent.

Q: What can you say about the debt situation in the economy?
A: Cost reduction in public sector is imperative. The nation’s real debt burden, including contingent liabilities, is over Rs. 9 trillion as opposed to the previous estimate of Rs. 7 trillion. Hence, we will reveal the real figures of the state of the economy in the coming weeks. We want to show the exact status of the economy because we don’t want to take the responsibility for what we didn’t do.

Q: Are telecom sector taxes justifiable?
A: During the election we got the former President wishing for Christmas and New Year. If these were given free of charge, why can’t the innocent consumers get the benefit of it? They were able to take those costs without any complaint. Now this is the time the innocent consumers who made them stay there get the benefit without these payments.

Q: How will Customs valuations on cars fare?
A: We have been able to increase Customs collection by Rs. 12 billion during the past one month compared to the previous year. The Department of Excise was able to collect Rs. 4 billion more in the last 30 days compared to what the previous regime had been collecting in the corresponding period. The previous regime had only been able to collect Rs. 4 billion as excise duty for the whole year but we have been able to collect that in one month. This is historic. By the end of the year the Government will be in a position to collect Rs. 48 billion or more.
With good governance coming into the system, you will see that revenues are flowing back into the system. This is just the start; I’m sure that the real income that should have come to the economy will bounce back to the system in the near future. This is a good indication as to how clean the Government is. If the head is clean, then the rest will follow.

Q: How will you ensure private sector increase the wages?
A: They have consolidated and we said if they want to they can mix it up on a productivity or performance basis. I must say that they have responded as well.

Q: Will there be any concessionary rates for private sector capacity expansion?
A: Certainly! If there are any interesting ones following our national objectives, we will assist as much as we could because our intention is to assist companies through open transparency. Even though it wasn’t mentioned in the Budget, if there are proposals that are good for the economy, on a very transparent basis, we will ensure such proposals go ahead.
You don’t need to go behind any minister. When we open this subject up to the investments that are going to come, we very specifically mentioned that we have put a proposal in that you have a final answer in 100 days. So, ladies and gentlemen, please take this as a working experience with you all today, that is if there are good proposals that have come, I’m sure we’ll be able to get those incorporated.

Q: When you presented the Interim Budget, it was termed a ‘Robin Hood’ budget. Will the 2016 Budget be people-friendly again or business-friendly?
A: I think even this is 99% business-friendly; 1% may be the other way. Whether it is Robin Hood in the full suit or ‘Saradiyel’ in a national kit, we were able to give 99% of what the country requires. I don’t mind what people call me, as long as the people of this country are happy.

Q: From when will the cancelation of interest on gold pawning come into effect?
A: It is important to say that we have taken urgent steps to ensure that relief granted by the mini budget trickles down to consumers as soon as possible. The cancellation of interest on mortgaged gold jewellery will be effective from 1 April.

Q: Certain people say that even this Government is conducting intervention policies; for example daily intervention on exchange rates. How do you promote exports having an overvalued currency?
A: First, tell me whether the export sector has been affected? I ask this because I must say that the previous administration did a good job of maintaining the rupee at the expense of exports. Don’t take the cost of an import-based economy. Rs. 50 billion has come in from import taxes. Until the economy is able to meet a huge surge in exports, we will certainly not play around with the economy at the expense of the tax. This is why exports must be able to get up and compete in real terms. Various supporting methods are available but certainly devaluation is not the answer. We have had that in the past and we are not implementing dictates of anybody.

Q: With regard to hybrid vehicles, what is the final decision? Don’t you think that the Government should consider that hybrid vehicles support the environment?
A: The final decision is the same that was spelt out on 29 January. This is not a government that says one thing and changes it in the afternoon. We mentioned that there were 25,000 vehicles coming here. We will collect revenue from the people who can afford it. We reduced the duty component on vehicles less than 1,000cc, but above 1,000cc we increased the hybrid component by 41%. Now only the traders are having this problem.
We have said that any person who opened the LC before 29 January should come forward with bona fide LC and then we will give it at the old rate. Only the traders are making this mischief. They had 2,000 cars in town and when we announced that the cost would go up by about Rs 800,000, they sold for Rs. 800,000 — we have receipts in our position. I’m sorry, we have given certain reliefs. They just have to pass it on to the consumers. I must say that this is the only trade that has gone corrupting politicians to religious persons and I’m ashamed that such things are going on. To answer the second question, that’s why we made the electric cars 5%. If you want to be environmentally friendly, that’s the solution.

Q: What plans have you got to restore stock market confidence?
A: It is a sensitive issue. We will address the issue carefully. If we find anybody attempting to pump and dump, we will ensure that stern action will be taken. We will take analyses of certain people. About 98% is held by 3 or 4%. We are not allowing the 3-4% to dominate the market anymore. There are compounded cases, nearly 13. We will ensure that these matters are reviewed. There is justification that this needs to be done and will be done in the future because we want people to have confidence of not being bullied.

Q: Will Golden Key depositors get relief before the end of 100 days?
A: Yes. That situation was completely mishandled by the previous Government and the Central Bank. Ulterior motives create problems. Those people languished for six years without any major relief. We called the Ceylinco Group of Companies to address this issue and I must say we have got a resolution which was very concessive, that was already sent to courts. We will ensure that they will get back to depositors of the failed companies and all assets will be liquidated so that they get back the maximum.

Q: What plans have you got to minimise traffic in Colombo?
A: Are we to provide helicopters? If they didn’t build these expensive Port City projects and instead converted them into highways, it could have been much better. But that’s the fate we have to face.