The Federation of Chambers of Commerce and Industry of Sri Lanka (FCCISL) urged government to use tax revenues mainly for development purposes and on activities that would drive the economy forward.

In its proposals for the 2009 national budget, the FCCISL said there is greater scope for openness and transparency on expenditure incurred in governance.

"The effective and worthwhile use of revenue generated by taxes will induce the payment of taxes by the business community sans hesitancy and reluctance," the FCCISL proposals said quoting an opinion of one of its constituent members.

"This possibly will lead to increasing revenue generation through taxation. Such revenue, it is felt, should largely be used for infrastructure development, which will impact favourably on economic growth."

The proposal says that the malfunction of state administration and machinery has ill-effects and stalls the progress of the country’s economy and that good governance required that the public sector cooperated at maximum levels with the private sector, the engine of growth, if the economy is to function efficiently.

"We wish to highlight this known fact since there are frequent complaints from our constituents of the inadequacy of the regional administration," the FCCISL said in its budget proposals to the government.

Approvals for water, sanitation and electricity have to be obtained by layers of different administrative departments and a number of local authorities which causes difficulty for businesses.

"We need to repeat that these prerequisites need to improve considerably if the administration is to be supportive of the private sector," the Federation said.

FCCISL proposed that the government set up productivity councils or committees to enhance productivity and change employee attitudes of the public sector.

On public-private partnership projects, the Federation said that many of these development projects are yet to make a significant impact with only a few of them making a start.

"This is a serious drawback in taking the country forward towards a speedy form of development which will help generate more economic activity.

"In this regard, we cannot help but mention that the old malady of indecision, hesitancy still forestalls Sri Lanka’s economic growth," the FCCISL said.

Some of the key proposals are highlighted here.

The FCCISL urged the government to think about a post GSP Plus scenario and develop mechanisms to help industries, particularly garments, compete effectively and aggressively in Europe, and in other markets, in the face of doubts to the continuance of the GSP Plus scheme.

It proposes tax reliefs and concessions to encourage local and foreign investment into the food exports sector, which the FCCISL believes holds much promise and is yet to be tapped.

The Federation proposed that the Valued Added Tax on raw materials and locally manufacture machinery be exempt to the leather products sector. It asked that the two state owned banks make credit facilities easily available to this sector and that the duty on imported machinery for shoe production be increased.

The FCCISL proposes that farmer households be grouped so they can be encouraged to collectively negotiate prices, and find solutions for storage and delivery requirements. This also allows agrarian households to have better access to information technology applications that would normally be available to larger firms.

The Federation said the banking sector should re-examine its dealings with the agricultural sector and initiate terms that would foster a more inclusive banking culture.

The FCCISL proposed that tax exemptions be made on research and development expenditure of firms so as to enhance the country’s competitiveness. The exemption could be provided on a proven basis for periods ranging from 5 to 10 years.

It proposed that the tax on dividends be reduced from 25 percent to 10 percent for the SME sector and to remove the tax on vehicles hired to transport employees.

The FCCISL said that tax holidays and concessions must be given to encourage the private sector to develop the generation of electricity from alternate energy sources.

It also proposed that the government take steps to widen the tax net.

The FCCISL said the Public Trustee is incapable of meeting the expanding demands of the public and that recent legal proceedings against the Public Trustee have eroded public faith. It proposes that the role of banks be expanded to enable them to be executors and trustees.

In light of recent controversies in the corporate sector, where auditors have been deliberately ignored and facts concealed or suppressed from them, the FCCISL said the government should establish an Auditing Practices Board and adopt a framework to govern the quality of auditing.

"There is also a need to improve the quality of company financial reporting purely on the frequent audit failures," the FCCISL said stressing the need for urgent state intervention.

The FCCISL also calls for more stringent corporate compliance, financial transparency and investor activism to restore public confidence in the formal private sector.