Ceylon Chamber commends continuity of enterprise Budget

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By 2017-11-14

The Ceylon Chamber of Commerce has welcomed the initiatives in Budget 2018 aimed at boosting trade and investment, improving housing ownership and the development of SMEs, and its overall consistency with strategies outlined in Vision 2025 and the Prime Minister's economic policy statement of October 2017.

In a statement the Ceylon Chamber has also commended the proposals to drive Sri Lanka towards becoming a more environmental-friendly economy, with an emphasis on improving access to finance for the development of enterprises, SMEs and startups.
The Chamber adds that National Budgets should focus on actionable outcomes within the relatively short time period of a year while facilitating the long-term vision, as opposed to being viewed as an all-encompassing policy document of the Government, and that Budget 2018 provides a good foundation for budgets to be viewed in this light.

However, it warned that measures to raise revenue through new levies could adversely impact industries that are also facing regulatory, investment and external challenges, and called for more clarity and consultation on proposals such as the removal of para-tariffs, reforming existing laws/acts and VAT exemptions (such as in the sale of condominium housing units). It adds that initiatives in shifting towards electric vehicles must be supported by a long-term energy plan that will complement the end objective of using non-fossil sources.

Extracts of the statement are reproduced below:
Focus on macroeconomic stability
While many proposals appear to complement the Government's medium-term vision beyond 2018, it is important that the Government does not waiver in the near-term from the current fiscal consolidation path.

The budget deficit target of 4.6% of GDP, set out for 2017 in last year's Budget, is expected to miss its target by 0.6% in 2017. While this is due to a higher interest expenditure than forecasted, it would have been mitigated if revenue grew as forecasted with the successful implementation of revenue proposals in the 2017 Budget.

The aim to reduce the deficit to 4.8% in 2018 is a less ambitious target compared to previous years, which is attainable if the tax revenue measures proposed in the 2018 Budget are implemented. This aim will be complimented by the new Inland Revenue Act, expected to come into effect from 1 April 2018. The continuation of fiscal consolidation will support monetary policy and help develop the recent improvement in macroeconomic stability with the build-up of reserves and improvement in the balance of payments.
Implementation mechanisms
The Ceylon Chamber of Commerce welcomes the initiative by the Finance Ministry to set up an Implementation Unit to monitor the progress of the proposals outlined in the speech.

The establishment of such a unit is greatly anticipated, given that a similar proposal was announced in the 2017 Budget as well, with a proposed committee comprising members of the private and public sectors to monitor the implementation process.
It is important to have confidence that the Government is serious about each of the many proposals announced in the 2018 Budget.
Too often have ambitious and laudable proposals been confined to the budget speech with a lack of implementation, creating an environment of policy uncertainty. There is a lack of attempts made to implement and honour these pledges. Some previous proposals that have remained unimplemented in recent budgets are repeated in the 2018 Budget. The Government will need to take serious steps to implement the announced proposals so as to improve its credibility.
A consultative approach to implementation
The Ceylon Chamber of Commerce hopes that the outputs and outcomes of the Implementation Unit will be available to the public as reported and include regular consultations with private sector organizations. The Ceylon Chamber is willing to engage with this proposed unit to provide feedback and input from the private sector on proposals that offer value to industry. It is important for the proposed policies to be implemented with specific timelines put in place beyond the preliminary indications outlined in the 2018 Budget speech. The above steps will help restore and renew public and investor confidence that desired targets will be met as planned.
Certain concerns

While there is less ambiguity in a majority of the proposals, certain measures could have a negative impact on industry if implemented as mentioned in the 2018 Budget. Measures to raise revenue through new levies (Special Levy for Debt Repayment and Cellular Tower Levy) could adversely impact industries that are also facing regulatory, investment and external challenges. Proposals such as this and removal of para-tariffs, reforming existing laws/acts and VAT exemptions (such as in the sale of condominium housing units) will require further clarification and input from the private sector before implementation.

The Ceylon Chamber also recommends the Government progress their renewed commitment in State Owned Enterprise (SOE) reforms and Capital Market development through divestment in holdings of non-strategic enterprises, with a credible plan of action. Initiatives in shifting towards electric vehicles must be supported by a long-term energy plan that will complement the end objective of using non-fossil sources.

Repositioning the purpose
of National Budgets
The National Budget should not be viewed as an all-encompassing policy document of the Government. Instead, National Budgets should focus on actionable outcomes within the relatively short time period of a year while facilitating the long-term vision. Further, National Budgets should shift from imposing overnight tax changes, that have proved to be disruptive to businesses in the past, and instead aim to provide grace periods for the implementation of medium to long-term tax plans. The 2018 Budget provides a good foundation for budgets to be viewed in this light.

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