Chamber of Commerce budget proposals -part 3

Continued from yesterday

Develop Sri Lanka Incorporated (Sri Lanka Inc.). A committee appointed under the chairmanship of the Prime Minister to address all issues relating to developing a core brand image for Sri Lanka, rationalising the pooling of resources and efforts of all state agencies and the private sector involved in the promotion of products and services overseas. Conduct a major public relations initiative locally and through the Sri Lankan Diaspora overseas to ensure the buy in of the concept by all Sri Lankans.

The objective of Sri Lanka Inc. will be to rationalise the use of resources for building a positive image for Sri Lanka which is needed for the development of the country. This will lead to saving and efficient utilization of resources now used on uncoordinated individual efforts carried out by various agencies.

Adopt a policy of liberalised skies to encourage additional airlines to fly into Sri Lanka and facilitate the development of tourism.

In evaluating tenders on donor funded construction projects with foreign contractors, make provisions for giving preferential treatment to those using local contractors as joint venture partners or for those using local raw materials and locally manufactured components. It is proposed that this be done through extra points allocated for using local joint venture partners/ local material, in the evaluation of bids. This will lead to effective technology transfer and capability development in local construction industry and increased employment potential. In view of the possibility of increased activity in the construction industry, this proposal is high priority.

— Facilitate the development of technology intensive agriculture, organic and other niche market products that attract high prices and enhance Sri Lanka’s competitiveness.

— Extend government support for the Dambulla market complex development proposal with tax and fiscal incentives. Lend similar support to other centres if successful.

— While setting up economic centres for agri produce introduce a system to consistently improve the quality of farm produce, significantly reduce post harvest losses and to ensure regular supplies of high quality fruit and vegetables through a package of financial and technical assistance to farmers. In the absence of these the sustainability of economic centres will be at stake.

Promote foreign investments in fisheries sector by:

— Effective Liberalisation of licensing deep sea fishing operations to optimise been Lanka, ensure transparent and efficient processing of applications and charge a royalty for giving permission to fish in Sri Lankan waters

Encourage the fish catch to be brought to the shore for value addition and expo thereafter while incentivising:

* employment of local fishermen and hiring of local boats

* skills development of the local fisher folk

Facilitate exploitation of minerals, metals and gems by the private sector through the announcement of Government Policy statement and regulatory framework before June 2005.

As of recent, the application of non-tariff barriers in the form of technical barriers by developed countries, especially EU countries, against exports from developing countries have shown an increasing trend. They apply high standards on environment protection, health and labour related issues etc to restrict imports. The capacity of exporters in Sri Lanka to meet with these requirements is very low. Hence labelling, certification by a third party standard setting institute such as the SLSI or a Industrial or Agricultural Research organisation is necessary to gain market access for our exports. Consider the following:

— Mandatory standards imposed by importing countries under which export products are prohibited from use as they do not comply with standards

— Voluntary standards - due to greater awareness of consumers in developed countries on environmental and health issues they are willing to pay a higher price for products so certified

Exporters meeting these standards will be able to get preferential prices and enhance market access opportunities. However, certification or labelling in the form of a self-declaration by a company is not effective and third party certification is required. For this the Sri Lanka Standards Institute should be equipped with facilities and staff to issue such certificates. Thailand is a country with relatively low tariff protection but the Thai Bureau of Quality Control of Livestock Products is an institute that is helping Thai exporters to meet with the increasing high standards. The Thai Government has set up and equipped this Bureau with latest technology and a young and qualified staff to assist exporters to meet the rigid standards set by the KU. It is also essential that we strictly monitor the quality standards on imports to ensure that basic health and safety standards are adhered to on imports and that domestic industry is not affected by sub-standard imports.

Compliance of imports with standards set by Sri Lanka Standards Institute (SLSI) or other authority to be enforced rigorously. Customs to randomly draw samples from each consignment and check through the stipulated standards. No importer to be precluded from these checks based on previous imports. All illegal duplicate imports detected by Customs should be destroyed without being sold by tender.

With the removal of exchange controls on foreign investment, eliminate administrative restriction constraining investments and implementation of new projects.

Expedite amendments to be incorporated into the Tobacco Tax Act approved by the Cabinet.

Currently on certain instances there are long delays in drafting and passing required legislation. These amending acts are passed long after the Budget Speech and hence carry retrospective clauses. Budget proposals are in the interim affected by press notifications made by the Ministry. There is no legal effect or validity in this and it is not a great practice. There is confusion between taxpayers, the collecting authority and the ministry. There is also anomaly between the press releases and subsequent legislation, which impede compliance on one hand and effective business planning on the other. Moreover, on certain instances new/amending tax laws are passed without adequate study of the proposed taxes. As a result legislation follows through several amendments before it becomes practically applicable. Therefore it is proposed that tax laws should be well planned prior to introduction, drafted and placed before parliament for debate without delay. We believe this would reduce the need for subsequent amendment and inconvenience to all parties. In the event there are to be amendments it is proposed that they be introduced at the budget 2004.

The basis of computing taxation and tax rates are being changed by press notices, prior to amending the relevant legislation. As a result the views of the market participants and the impact of the changes on business enterprises are not addressed. This practice often amounts to amending tax legislation with retrospective effect and should not be resorted to. Business planning is critical for cash flow management and to enhance competitiveness. Advance notice of proposed tax changes and discussion of those with the private sector will create a conducive environment for business and investment.

Ad-hoc acquisition of lands especially from Regional Plantation Companies should be stopped. Public purpose in land acquisition should be restricted to a highway tracing or similar requirement.

The promote the development of the above sectors the Government to facilitate technology transfer and arrange micro credit for agriculture, fisheries and livestock sectors through an, international funding and managing agency.

Facilitate development of futures and options market. First identify the needs of and agree on the benefits sought by market participants. Address necessary legislative reforms, create an appropriate regulatory regime, improved awareness, develop capability, grant tax incentives and develop infrastructure (including a centralized exchange/clearing house). Begin targeting the Tea Trade and Stock Market and thereafter target the paddy sector and the fruits and vegetable sector.

Establish a permanent Authority with appropriate technical expertise and multi-lateral funding to address legal reforms, financial sector reforms and to deregulate and eliminate barriers to market development.

Adopt early, Mergers and Monopolies legislation, Exchange Management Act, Anti Dumping legislation, the new Companies Act and pending legislation on financial sector reforms.

Recommendations to prevent loss of Government revenue from smuggling

1. Establish a database of Agents valuation of common goods imported into Sri Lanka (as practiced for motor vehicles imported into Sri Lanka).

2. Intensify scanning on persons who are bringing in commercial quantities with maximum fines for importers/passengers detected with smuggled goods, as stipulated in the Customs Ordinance and other statutes.

3. Intensify vigilance by law enforcement agencies at points of entry for more focused enforcement of the law.

4. Increase frequency of surprise checks by Revenue Taskforce under Customs.

1. Forge an effective partnership between Customs/other law enforcement agencies and affected industries.

2. Regular dialogue between industry and law enforcement authorities under the aegis of the Chamber of Commerce.

3. Customs to prosecute the importers who makes false declarations.

1. Establishment of a Directorate of Special Operations under the proposed Revenue Authority, comprising Customs, Excise and Police personnel.

2. Signing of a Memorandum of Understanding, as appropriate, between the Customs and affected industries.

3. Limit variation of declared value of imports to 10% of agent valuation.

First stages towards group taxation - As a first step towards allowing for Group Taxation, we recommend that where a company invests in a project situated in one of the new economic regions, and a subsidiary of the first mentioned company is incorporated for this purpose, then the investing company be allowed to consolidate the profits/losses of this second company provided it does not qualify for a tax holiday when computing its taxes. Such a provision would not in any way reduce the revenues due to the government, since the losses would otherwise have been incurred directly by the investing company.

At the second stage, the following facilities to be available to a "Group of Companies" meeting the criteria of a "group" defined as above:

(i) Where a subsidiary is a non-listed company, the withholding tax of 10% applicable to a subsidiary, indicating dividends, be removed and taxation be only in respect of dividends when paid out by the Holding Company (Dividends from subsidiary to persons other than Holding Company to continue to be taxed at 10%)

(ii) Submission of a single tax return including group profits, after setting off any tax losses within the Group,

(iii) Recognition of a holding company as a resource for the group and entitled to reimbursement of costs for services and facilities shared, without exposure to indirect taxes.

(iv) Utilization of brought forward ACT credits within Group,

(v) As an interim measure, it is suggested that Public Listed Companies effectively conforming to criteria set by the Colombo Stock Exchange on Public Float and Liquidity, be allowed this facility.

NB: For purposes of the Inland Revenue Act, a "group" to be defined as a company together with all companies of which it holds directly or indirectly, not less than 50% of equity capital (ordinary shares).

Export Development Investment Support Scheme (EDISS)

The Export Development Investment Support Scheme to be extended to non-traditional exporters of goods and services successful in generating a growth in their export turnover.

Only 25% of the EDISS grant is paid in cash. The balance 75% is in the form of an Export Development Certificate (EDC) which can be encashed only for investment in export oriented projects approved by the Export Development Board.

Qualifying sectors all merchandise exporters (only producer cum exporters would be entitled for this scheme) other than those exporting tea, rubber, coconut products, coffee, cloves in primary form, gems and garments under quota. In the services sector all services excluding tourism and foreign employment.

Qualifying criteria: Exports earnings in USD terms in the grant year to be at least 2% higher than the average for the three previous years.

Payment rates: The grant value would be based on the % of the Net Foreign Exchange earned by a product category.

Exporters receiving Rs 200,000/- p.a. in EDISS payments to be paid in cash and those eligible for an amount in excess of Rs 200,000/- to be paid 25% in cash and the balance as a Export Development certificate. EDCs would be valid for 3 years and be encashable only after investment in export oriented projects approved by the EDB. These should include only investment in buildings, machinery and export promotional activities (and not to be allowed for purchase of vehicles or to finance working capital).