Opinion by Ajith Perakum Jayasinghe, Editor
In 2021 budget proposals, the Sri Lanka government invited the fraudulent businessmen to pump their hidden money to boost the ailing economy.
"For the benefit of the country, I request all entrepreneurs to utilize the funds hidden locally or internationally in order to evade laws relating to taxes and foreign exchange. It is expected to make legal provisions to provide a tax pardon to entrepreneurs thus utilizing funds for any investment facilitated by this budget under the payment of taxes amounting to 1 per cent," Prime Minister Mahinda Rajapaksa said in the parliament today presenting the budget proposals in his capacity as the Minister of Finance.
Early December 2019, after introducing sweeping tax reforms, cabinet spokesman Kaheliya Rambukwella expressed confidence on growth and fiscal management despite the Rs. 550 stimulus impact on the economy. “As promised, we have initiated some actions immediately after the election, which will ease the burdened general public by way of reducing taxation. The Government will lose about Rs. 550 billion worth of revenue annually by the reduction of taxes announced last week. Some are arguing on how the Government is going to compensate for the revenue loss with the tax cuts, and these taxes depend on the size of the economy. Right now our economy is at $80 billion, and if you apply 5% tax, you are still collecting $4 billion, so this simple theory will be practised by our experts in the financial sector,” as reported by Daily FT.
The 2020 budget speech did not include any review on the policy changes made by the government as soon as they were elected but said that the same tax policy would be implemented. The government incurred massive loss of income and recorded minus growth in 2020.
The government estimated the state revenue as Rs. 1,961 billion and expenditure as Rs. 3,525 billion. The budget deficit is Rs. 1,564 billion which is 9% GDP.
Prime Minister and Finance Minister Mahinda Rajapaksa proposed obtaining loans under an upper ceiling of Rs. 2,900 billion to balance 2021 budget.
In 2020, Sri Lanka government has obtained Rs. 2,650 billion loans, even without the approval of the parliament for a part of it.
The government is under severe criticism because of the allocation of more money for roadbuilding than health amidst the raging crisis of COVID-19. Sri Lanka government allocated Rs.159.57 billion for health, a slight amount more than the allocations in 2020, Rs. 159.48 billion. It is far below the allocations under the previous government for health which was Rs. 187 billion.
Meanwhile, the government allocated Rs. 330 billion for the Ministry of Highways, nearly double the amount allocated in the 2019 budget, which was Rs. 176 billion. Road building is believed a highly corrupt business in Sri Lanka. Amazingly, road building amounted almost double the allocations for health amidst COVID-19.
The government encouraged the foreign investors by exempting the tax on dividends of foreign companies for three years if such dividends are reinvested on the expansion of their businesses or in the stock market or in Sri Lanka International sovereign bonds.
"Investments exceeding USD 10 million with potential to change the landscape of the economy, in the areas of export industries, dairy, fabric, tourism, agricultural products, processing and information technology will be provided with concessions up to a maximum of 10 years under the Strategic Development Law," the government said.
The budget proposals included, "In order to promote the Colombo and Hambanthota ports as commodity trading hubs in international trading, and to encourage investments in bonded warehouses and warehouses related to offshore business I propose to exempt such investments from all taxes."
The government further encouraged the multinational companies by encouraging the exports of multinational companies which are import-based for requirements of the domestic market. "It is proposed to reduce the tax imposed on their dividends by 25 percent in 2021 and 50 percent in 2023 under the condition that they increase their exports by 30 percent and 50 percent in the respective years," the Prime Minister said.
"To develop the latent industries such as mineral sand, phosphate, fertilizer and graphite as high-value export industries, I propose to reduce the expenditure on research and development expenses of local entrepreneurs involved with the Institute of Nanotechnology from taxes," the Prime Minister stated in the budget speech.
The government provided a seven-year tax break for local boat and shipbuilding.
For the benefit of rural women, the government proposed, "to establish a shop in all Grama Niladhari divisions where the network of shops has been adequately expanded targeting 25,000 female entrepreneurs chosen from Samurdhi families. Under this network of shops functioning under government sponsorship and bank credit facilities, priority will be given to selling local products. Related expenditure of the local entrepreneurs who contribute to establishing these shops will be considered as deductible expenditures in the calculation of personal income tax." Thanks and implement at least this for small people.