Private sector evokes mixed reactions for Budget 2022
Former President of both CA Sri Lanka and the South Asian Federation of Accountants (SAFA) and founding Chairman of Strategic Insurance Brokers (Pvt) Ltd Indrajit Fernando said:
“The new one off surcharge tax on profit of companies making over Rs. 2 B is a progressive step as the wealthy corporate sector is given an opportunity to share in the burden of the Covid related recession.
‘The SME sector and the average citizen cannot possibly shoulder the burden of the C119 downturn. It’s big business that can do it, and the new policy initiative is fair and reasonable in this context.
Also, big business benefited in many ways from the Covid shutdowns at least in some ways —they were able to optimize staff cadres, shed the fat as it were — and streamline their organizations, and also benefited from the stay at home work ethic because they succeeded in doing business without significant overheads. They benefited from the rapid digitization of systems. It’s absolutely imperative that they now shoulder the burden, and make a proper contribution to the national recovery effort. Taxes raised by this initiative once invested back in the economy can bring medium long term benefit to the same organizations that would make this contribution by way of tax.
The discontent around the 1% only tax concession on volunteer disclosure relative to this surcharge tax, has little or no merit. The capital inflows from raised revenue can be significant and material.
The stakeholders of the companies contributing tax like the one off new tax too can be the beneficiaries of the same 1 per cent concession. These funds once productively utilized would benefit the large corporate too as much as they benefit SME’s, householders and individuals. Individuals prosperity will in turn directly and indirectly benefit the large corporate, including the companies making over Rs 2 B to sustain and further grow profitability.”
Non Banking borrowings could increase money printing- Gajma – Senior Partner N.R. Gajendran
Gajma and Co Senior Partner, N.R. Gajendran said: ”There are some striking features in this Budget not seen in previous Budgets
-Expenditure is endeavored to be made efficient and effective by focusing boldly on same. An example being the annual expenditure warrant be made a quarterly one.
-Revenue collection has been made equitous as new taxes are not so much on the magnitude, Technology and connectivity are used to enhance revenue collection and KPI is going to be used motivate public sector employees
There are some matters of concern such as nothing has been specifically dealt with on the mandatory conversion of foreign currency earnings and this will deeply negate FDIs, business confidence and ease of doing business.
Recurrent expenditure is touching Rs 3trillion where in the Appropriation Bill it was Rs 2.5 trillion.
There is over reliance on non- banking borrowing and there could be the possibility of continued borrowing from the Central Bank which can amount to printing of money.
Against this backdrop, here are some policy changes that can assist the industry: Allow Private Power Purchase Agreements between individuals and companies. For example, a factory owner will agree for a separate investor to install solar on the factory roof and sign a contract (a Power Purchase Agreement) to pay the investor for the energy used from the system. Private PPAs will facilitate investors to raise funds internationally, thus improving the uptake of renewable energy and facilitating more foreign investment.
Provide state land and power transmission infrastructure for large scale solar parks. At present, anyone who wishes to build a solar power plant must obtain land, pay for power lines to the nearest CEB grid substation and obtain all approvals and clearances and finally, they must submit a competitive bid to supply the power to the CEB grid.
By providing the necessary land, power lines and approvals, the government can speed up the development of such projects to increase investment coming into Sri Lanka.
Additional burdens on an already ailing private sector- CNCI Chairman
Chairman of the Ceylon National Chamber of Industries (CNCI) and CEO of Aqua Packaging (Pvt) Ltd Canisius Fernando said: ‘’Finance Minister Basil Rajapaksa presented the 75th Budget for 2021, planning to reduce the budget deficit to around 8.8% of gross domestic product.”
He stated in his 2022 Budget Speech, that “We are living through history’s most challenging period in terms of people’s lives, livelihood, sources of income, and job security,” Further he said that “Istrongly believe that, even amidst these challenges, we are equipped with all the necessary strengths to manage the economy and to overcome such challenges.”
My observation is that, to maintain these proposals there will be a huge burden placed on the private sector companies and institutions. It is really pathetic as they are already facing a grave situation with their poor performance last two years due to C-19pandemic and Ester Sunday attack.
The CNCI Chairman feels that the Govt. is trying to overcome these challengers at the expense of the private sector, by imposing 2.5% covid-19 tax (Social security contribution) on the companies who earn 10 Million a month, this enforcement will be through the entre private sector institutions including small and medium enterprises. I believe this is going to be a very difficult task for the industrialists to achieve as they are struggling to survive during this time with bank loans (moratoria) and financial losses with very low operational income and incurring huge expenditure compared with pre C-19 period.
“Surely there will be a sizable amount of institutions either will be compelled to close their operations or their businesses will collapse.”
Tax surcharge for the companies who earn 2 Bn. before tax are liable to pay 25% of the taxable income as per the proposed budget. In this category there will be double taxations. Ie.2.5% turnover tax and 25% tax surcharge. In turns there are no benefits proposed by Govt., and it is really discouraging.
Most of the manufacturing companies had severe impact to their operations due to escalation of cost during Covid-19 and it had got further disturbed when the govt. de-activate the tripartite agreement where companies had to pay for employees who had not added any value to the business by staying at home due to covid -19 guidelines. We don’t see a speedy recovery and these institutions are rather going from bad to worse.
Govt. should not consider only tourism, apparel, plantations, and agriculture as affected due to COVID-19 pandemic. In my opinion, the entre industrial sector was affected by and large and its employees, general public. As a result, there is a huge pressure for wage hike as their purchasing power has come down due to devaluating of the local currency due to country’s economy.
In late October, Moody’s downgraded Sri Lanka to Caa1 from Caa2 on debt sustainability concerns and a challenging external environment. Moody’s estimates is that revenue will remain around 10% of GDP over the next few years while interest payments will continue to absorb around 60-70% of revenue. This will have a significant pressure to encourage FDI’s in the country, eventually industrialist will have a nightmare to maintain their businesses with the frequently policy changers of the Govt. as per the economic conditions. Sri Lanka has to repay $4.3 billion in debt in 2022 and reserves dipped to $2.27 billion at the end of October.
My candid opinion is that this budget is very short term in nature as it imposes additional economic pressure to an already ailing private sector.
First ever woman – President of the Ceylon Association of Ships’ Agents( CASA) and Group Managing Director of McLarens Ltd Shehara de Silva said:
“From the shipping industry point of view, we welcome the initiatives of the Finance Act to develop free ports. Having paperless and ease of doing business in ports is critical for Sri Lanka to develop as a maritime hub in the region. The shipping industry is a key contributor to the economy in terms of foreign exchange generation.
One of the key concerns we have from the shipping industry is the imposition of a social security levy based on the turnover of 2.5% . Shipping is an international business and need to be competitive regionally and such a local tax on the turnover would make it impossible to be competitive or even operational at a feasible level.
The reason being is shipping services such as bunkering are high turnover and low margin business and tax on turnover doesn’t take this in to account the quantum of the profit margin. Hence we request that the basis for the social security levy is changed to be based on profit for the low margin businesses. This is vital if Sri Lanka is to develop maritime services and remain competitive as a maritime service hub in the region.
Former Chairman of the Planters’ Association of Ceylon, incumbent PAC spokesman and Hayleys Agriculture Managing Director Dr. Roshan Rajadurai said:
“We are looking forward to some sort of relief during these trying times which we are trying to endure. The absence of chemical fertilizer and agrochemicals will certainly dip our production. The huge additional tax burden is also not something we could afford.
The adverse weather conditions in the upcountry areas is bound to impact tea production in both output and quality.
We are not expecting any handouts from the government but all what we are looking forward to from the state is to restore normalcy and creation of a level playing the state is a level playing field so that we could continue with our business uninterrupted like before.
President of The Colombo City Tourist Hotels Association, Vice Chairman of the Tourist Hotels Association of Sri Lanka and THASL Chairman- designate Mylvaganam Shanthikumar said:
“We are expressing our displeasure on the budget 2022. As despite making a request and a proposal to the relevant authorities to take into consideration during the consultation process of the budget 2022, none of the proposals or the requests were included and ignored in the budget. It is also very well known that Tourism was the worst affected sector due to manmade and natural disasters over a period, finally with the pandemic.
It the current economic contest, Tourism should have been given top priority to recover by extending the moratoria and debt re-structuring so that the hotels could survive and will be in a position to accommodate the tourist arrivals.
Tourism sector is the major contributor towards the foreign exchange earningswhich isindeed need of the hour. However, much to our disappointment the industry has been totally ignored for some unknown reason. We hope the authorities will realize and extend and support the industry for fast survival and recovery.
We pay Rs. 3 bn monthly for dairy farmer – Pelwatte Diaries Chairman Ariyaseela Wickremanayake
Chairman of Pelwatte Dairies PLC and former Chairman of Pelwatte Sugar Industries PLC AriyaseelaWickramanayake said:” My company is paying Rs. 3 Billion and it is not the Government which is paying those salaries.
Sri Lanka has around 15 milk producing companies and has already attained self -sufficiency in milk. II do not know why the Government is spending US $ 400 million on milk importsand subsidizing the New Zealand Dairy Farmer.
Wickramanayake, who was also Chairman of Pelwatte Sugar Industries PLC prior to its acquisition under the Expropriation Bill during the Mahinda Rajapaksa Presidency, said :” If was allowed to continue at Pelwatte Sugar, we would have reached self -sufficiency in milk as well.
Shermans Trading subsidiary SolSpectrum Managing Director, Navin de Silva said:
The 2022 budget mentions the government’s goal to produce 70% of electricity by renewable means and to encourage the local manufacture of renewable energy machinery.
In the last few months, the price of renewable energy equipment, particularly solar panels, have risen rapidly due to a global rise in raw material prices. The situation has been made worse due to high shipping costs, and increased demand caused by a worldwide energy crisis.
Given Sri Lanka’s foreign exchange crisis, poor credit rating, and extensive red tape for energy projects, attracting foreign investment for large scale energy projects prove difficult.