Overall surplus in Balance of Payments



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Budget 2013 Highlights


= Rs. 1000 million allocation for three years for housing loans for Security Forces personnel.


= Additional set of uniforms and a pair of shoes for students in difficult areas.


= Interests on loans obtained by farmers in the drought hit areas will be fully exempt.


= Guaranteed price for paddy to be increased to Rs. 35 and Rs. 37


= No permit needed for tapping Kitul and Coconut for the purpose of making jiggery/treacle.


= Subsidy on tea smallholders will be increased from Rs. 300,000 to Rs. 350,000 per hectare


= Selling land to foreigners totally prohibited.


= All equipment needed by people with special abilities will be made duty free.


= Allocation of Rs. 4000 million for enrolling additional 5000 students to national universities.


= Nena Sela centres will be set up in all Grama Niladari Divisions using government buildings and religious venues.


=Rs. 200 million to continue the interest free loans to journalists and artistes in 2013 as well.


= Dairy farmers to be paid Rs. 50 per litre of milk.


= Senior citizens of over 65 years of age to be paid a livelihood allowance of Rs. 5000 per month from 2013.


= Minimum allowance of Rs. 1500 per month for public servants.


= Financial and administrative regulations will be changed to the needs of modern times from 2013.


=Fertiliser manufacturing and land expanding companies for agricultural purposes and companies replanting tea, rubber and coconut will be exempt from taxation.


= CESS will be imposed on finished products but tax exemptions will be given to companies that manufacture deemed exports.


= Listed private companies will be allowed to pay only less than 50% of the income tax if 25% of the shares were issued to the public.


= The retail sector will be liable to pay 12% turnover tax per annum if the annual turnover exceeds Rs. 500 million.



1. Introduction


1.1 Honourable Speaker, I am pleased to present the 8th Budget of our Government to this august assembly. I am humbly proud that our Government has been able to place this country on a path of peace, reconciliation and development based on Mahinda Chintana Vision for the Future, having obtained the confidence of this House for 7 consecutive annual Budgets.


1.2 This Budget is presented in the backdrop of three important events. First, this Parliament successfully sponsored the 58th Commonwealth Parliamentary Conference. It gave the visiting parliamentarians to see for themselves how our country has shifted from conflict, to peace and reconciliation. They would have also been convinced that the LTTE propaganda campaign carried out overseas to tarnish our country’s image is baseless. I thank the Honourable Speaker, the Honourable Leader of the Opposition, the Party Leaders and the Honourable Members of Parliament for uniting to rise to this occasion, leaving their political differences behind.


1.3 Second, we are here after concluding Provincial Council Elections in three distinctly different provinces. The three provinces represent one fourth of the population. All parties contested and showed confidence in democracy. Elections were peaceful. It was a good test for all parties and candidates to test the acceptability of their standing on issues. It was a good mid-term test for the Government of its policies and development strategies. The Government is encouraged that people from all communities have continued to place their overwhelming confidence in its work, in spite of drought affected living conditions. We are also encouraged that the people in the Eastern Province placed their confidence in the Government appreciating resettlement, rehabilitation and re-construction work done in that province.


1.4 Upholding our commitment to transform the Northern Province on a similar line, the Government has implemented many development initiatives. People have got back to normal family living without the fear of having to lose their children to the LTTE. Access to electricity, education, water, and health facilities is improving rapidly. Banking and financial institutions have been expanded. Samurdhi Program has been expanded providing benefits to eligible families. Children enjoy educational tours, visiting the South. They also visit Temple Trees and talk to me as well. I see new hope in their faces.


1.5 There is a strong enthusiasm in the northern people to find economic prosperity in the newly found environment. The people in the North appreciate the implementation of Jaffna - Kilinochchi water supply scheme that provides drinking water to 70,000 families. They are also enthusiastic on the Moragahakanda irrigation scheme which takes water to the Iranamadu tank. I was encouraged with the level of participation of local representatives at the district consultation meetings I had prior to this Budget. We remain firmly committed to conduct Provincial Council Elections next year, to facilitate democratic representations to promote peace and development.


1.6 Third, this Parliament passed the Local Authorities (Special Provisions) Bill and the Local Authorities (Amendment) Bill, unanimously. This will permit people in local authority areas to elect 60 percent of their representatives on the basis of a vote system and the balance on a proportionate system. This will enable people to have direct contacts with their electoral representatives on matters concerning their electorate. I also hope this new system will eliminate unnecessary spending and personal animosities among political candidates.


2. A Review of the 2006 - 2010 First Five Year Plan Strategy


2.1 Honourable Speaker, the first five year development strategy covering 2006 to 2010 that centered around Mahinda Chintana Towards a New Sri Lanka; was implemented in the midst of a brutal terrorist conflict in the north that existed for nearly three decades. It cost us many valuable lives, resources and opportunities. The country was ruled through emergency regulations even denying basic freedom of the people. Economy suffered from depleted infrastructure. Resources from the Budget to reduce poverty and provide support to agriculture had to be curtailed. Rural roads, irrigation, electricity and water had not been expanded to uplift the rural economy. No capital infusions could be made to maintain efficient functioning of state enterprises. The public service delivery mechanism weakened. Unplanned liberalization initiatives marginalized local enterprises. The Budget deficit was high and debt had risen in excess of GDP. Inflation, unemployment and poverty were high. Our country was a lagging nation in a highly globalized economy.


2.2 In a short period of time we changed all these. Conflict ended. Demining and rehabilitation and resettlement of displaced people were completed. Livelihood of people in conflict affected areas was revived. Development of infrastructure facilities in ports, airports, road and bridges, expressways, irrigations and water supply, townships and rural facilities commenced. State enterprises are being revitalized. The fertilizer subsidy and the much needed welfare programs for vulnerable groups were expanded. The Paddy Marketing Board and Lak Sathosa were re-established and facilities to support farmers and consumers were also expanded.


2.3 Economy at the end of the first 5 year plan period reached a growth rate of 8 percent from 5 percent before. Per Capita income increased to US$ 2,800 from US$ 1,062 in 2004. Inflation declined to 7 percent and unemployment to 5 percent from a double digit before. Poverty was reduced from 15.6 percent to 8.9 percent. The Budget deficit was reduced to 8 percent from 10 percent and Debt to GDP reduced to 80 percent from 100 percent. External stability was sustained through international reserves being maintained at around US$ 7 billion. All these were achieved amidst high oil prices, the global economic depression, natural disasters and adverse climatic changes.


3. Strengthening Law and Order


3.1 Honourable Speaker, the successful journey of our country towards peace and development would not have been a possibility if not for the commitment and sacrifices made by our security forces and their families. We must continue to appreciate their contribution. I offered a grant of Rs. 100,000 at the birth of a third child of any member of the security forces, to improve their family environment, in the 2011 Budget. I extended this to the Police Force in the 2012 Budget. A monthly allowance of Rs. 750 was also granted to each of the parents of members of the security forces, in the 2012 Budget. The Ranaviru Divi Neguma special loan scheme was implemented to promote selfemployment among disabled soldiers. Since housing conditions of many of these families are not satisfactory, I propose to implement a three year rehabilitation programme to improve housing conditions of families in security forces. I propose to allocate Rs. 1,000 million to the Ranaviru Authority, to implement this program from 2013.


3.2 Honourable Speaker, in the post conflict environment the responsibilities of the Police and the Civil Security Force have increased considerably in the enforcement of law and order throughout the country. Therefore, I propose to provide a further Rs. 950 million in 2013 for the Police, develop its academy for training and human resource development and for the rehabilitation and construction of police stations. I also propose to implement the recommendations made by the Salaries and Cadre Commission to rationalize their allowances.


3.3 Honourable Speaker, the Civil Security Force provided a valuable service to our rural villages during the conflict. In appreciation of this, all servicemen in this Force were given pensionable status. The Civil Security Force can now be engaged in the protection of electric fences and to provide other security arrangements in villages where wildlife threats prevail.


4. 2011-2015 Second Five Year Plan Framework


4.1 Honourable Speaker, we have entered the second 5 year plan period of 2011 to 2015, based on the above performance and the overall approach set out in Mahinda Chintana – Vision for the Future. Our aim is to transform this country as an upper middle income country by reaching a Per Capita income of US$ 4,000 by 2016. Our overall growth strategy is to achieve a gradual increase in the investment level in excess of 35 percent of GDP. An environment has been created to promote domestic private investments and foreign direct investments, particularly in areas in which substantial capital, technology and market access have to be mobilized from abroad.


4.2 Honourable Speaker, addressing imbalances in the import and export structure is core to generate a high economic growth. I am encouraged with the emerging investment profile that reflects Government priority. The gradual increase in investment in food and agriculture, tourism, heavy industries, plantations, tea, apparel, IT, spices, pharmaceutical, energy, petroleum resources, and infrastructure support the underlying investment targets as well as the desired growth with opportunities for employment.


4.3 Honourable Speaker, we should not overlook the challenges in this transformation. The global economy is confronted with a major crisis. The recovery in the United States has been very slow. The Euro Zone crisis has put major European economies in a deep economic turmoil, causing instability in major European economies. Middle East economies are confronted with political uncertainties. The economic growth in China has slowed down to around 7.5 percent. Economic growth in India has been projected to grow at 5 percent. All these economies are facing difficulties in obtaining crude oil supplies from Iran. Similarly, oil prices have remained high draining out the limited foreign reserves we have. Domestic policies connected with credit expansion, public enterprise management, pricing of energy and petroleum has implications on our economic performance.


4.4 In my last Budget, I explained the need to take corrective measures in response to imbalances in the export and import trade. There are limitations in subsidizing high oil prices. There is also a danger in relying on oil based power generation strategies. Corrective measures required to be taken to address these challenges are politically difficult but as a responsible Government we need to take such measures, in the interest of financial stability and development.


4.5 We allowed greater flexibility in the exchange rate and less flexibility in credit expansion to curtail imports. Increase of excise tax on motor vehicles and selected commodities is necessary to support foreign exchange management. Imposition of a special commodity levy enabled us to encourage farmers to increase production of rice, maize, onion, potatoes, and dairy products, to reduce imports.


Although these measures reduce tax revenue from imports we scaled-down our expenditure programs to keep Government expenditure in line with such trends in revenue.


4.6 Honourable Speaker, unlike past governments, we have not are removed subsidies, curtailed rural development or livelihood improvement of low income people. Expenditure on education and health, salaries and pensions of public servants has been protected.


Recruitment to the public services has not been frozen. Development expenditure on ongoing infrastructure development has not been compromised. I must stress that under no circumstances, state enterprises have been privatized. We remain committed at all times to continue to engage in a constructive dialogue to identify justifiable solutions and to provide incentives to all public servants within affordable limits and in a sustainable manner.


4.7 Honourable Speaker, our overall policy actions have contributed positively. Although, the margins of exporters have eroded due to weaknesses in global markets, all of them seem to have benefited from the flexibility in exchange rate management. Despite downturns in export markets, export earnings are likely to be around US$ 9.5 billion in comparison to US$ 10.1 billion last year.


Expenditure on imports has been reduced to around US$ 18.5 billion from US$ 20 billion last year. The adjustment process has been intensified to phase out importation of food and dairy products, through increased local production. The steady inflow of remittance income from overseas employment, earnings from increased tourist arrivals, and capital inflows to Government and the inputs from the private sector have helped to strengthen our external account.


Consequently, Government has been able to maintain foreign reserves at around US$ 7 billion and stabilize the foreign exchange market.


4.8 In the midst of an uncertain global environment, we have been able to maintain a satisfactory growth of around 6.8 percent. This is due to the resilience in the export economy, construction industry and service sector activities despite setbacks in the Yala harvest and hydro power generation. In spite of the adverse impact on Government Revenue due to the contraction in taxable imports, the Budget Deficit has been kept at 6.2 percent of GDP as announced in the 2012 Budget, through adjustments in taxes as well as in expenditure programs. Government Debt is likely to remain at around 80 percent of GDP as in 2011. Inflation threat is disappearing thanks to the financial policies adopted, increased domestic food production, maintenance of ample paddy stocks and the coherent Government wage policy. Despite increases in the cost of transport, fuel, electricity and water, prices of most essential food items have stabilized. Inflation has declined to 8.9 percent in October after reaching its peak at 9.8 percent in July this year. Unemployment continues to be on the declining trend. We propose to consolidate these healthy outcomes despite challenges ahead.


5. 2013 – 2015 Macro Economic Vision


5.1 Honourable Speaker, the 2013 Budget has been framed to ensure that the economy will bounce back at an average growth rate of 7.5 percent in 2013 and 8 percent thereafter. The underlying monetary policy strategies to maintain a monetary expansion of 14 percent, and the favourable food supply conditions will moderate inflation at around 7 percent. Flexibilities in the exchange market will enable the required improvements in exports and the reduction of imports, to narrow the trade deficit. The Government also projects an overall surplus in the Balance of Payments which will strengthen our international reserves. I will also assure the House that the fiscal strategy of 2013, will underscore the Government’s commitment to keep the deficit below 6 percent of GDP and protect public investment at the present level, enabling development projects of the Government to be continued. The underlying fiscal strategy will contribute to a Budget deficit of 5.8 percent in 2013 and move towards a deficit of 4.5 percent by 2015, with public debt below 75 percent of GDP. Honourable Members, these are the adjustments that underscore the commitment of this Government for greater fiscal responsibility, which surpasses all such attempts by Governments in recent years.


6. National Reconciliation


6.1 Honourable Speaker, the development framework for 2011 - 2015 aims at consolidating the hard earned peace through national integration.


Therefore, the implementation of reconciliation initiatives identified by the Presidential Task Force based on the Lesson Learnt and Reconciliation Commission (LLRC) Report has been given highest priority. The initiatives to promote a trilingual Sri Lanka, social integration programmes, rehabilitation and reintegration of excombatants, issuance of land title documents and resolution of land related issues, providing housing needs and strengthening local authorities and public services in these areas have been given high priority. A budgetary allocation of Rs. 763 million has been provided under respective spending agencies, to address above concerns. I propose a further supplementary provision of Rs. 500 million to fasttrack this process. Senior officers of relevant institutions will be designated to be fully responsible for the implementation of these measures under the overall supervision of the Presidential Task Force.


7. Family, Religion and Culture


7.1 Honourable Speaker, family, religion and culture are well connected in the Sri Lankan value system. Religious places have been in the center of interfacing culture, community and individual families.Mahinda Chintana is a vision designed to ensure that all aspects of households and the community are empowered, while being centered around religious organizations and with the participation of the community, to promote family values, eliminate the use of harmful drugs, provide care for the elderly and disabled persons, prevent diseases in the primary stage, encourage a healthy lifestyle and promote communal and religious harmony in our society.


Therefore, I propose an allocation of Rs. 200 million in this Budget to encourage religious institutions to implement such proposals with the participation of local communities.


8. A Poverty Free Sri Lanka


8.1 Honourable Speaker, although poverty in our country has declined to 8.9 percent, access to water, housing and sanitary conditions among certain low income families requires considerable improvements.


Child and maternity care should be addressed through dedicated facilities provided to such areas. School enrollment of children among these families is unsatisfactory. Access to transport and connectivity to market places is poor, depriving basic opportunities for a decent living. Many low income families have become victims of drugs, illicit liquor, crimes and violence. Therefore, I propose to commit more funds from the National Budget over a three year period, to engage relevant agencies to address the remaining facets of poverty through well targeted initiatives.


8.2 The 14,000 new graduates who have been posted to each Grama Niladari division along with all other field level officers of line agencies will be engaged as poverty reduction animators to uplift the living conditions of the poor people in each village. Toilets and basic housing facilities of these people will be restored. I propose to develop isolated rural schools to create a child friendly school environment and provide cereal, milk and eggs free of charge for each child attending such schools. I propose to give a free mid-year uniform to children attending such schools. I also propose to give a free pair of shoes to these children who are living in these difficult areas. Our aim is to ensure 100 percent primary school enrolment throughout the country.


8.3 Attainment of developed country standards, with regard to maternal and child mortality rates is also a target in this strategy. Therefore, rural hospitals, dispensaries, maternity and child care centers will be developed in deserving locations. Knowledge sharing programmes to educate mothers on child nutrition will be intensified among low income families to eradicate malnutrition from the country. A regular supply of food and nutritional requirements will be ensured through targeted Divi Neguma and Samurdhi initiatives for such families. The


Presidential Task Force on Malnutrition will undertake regular reviews and take specific actions through this special initiative.


8.4 Honourable Speaker, the aim of our Government is to claim that Sri Lanka is a poverty free middle income economy and to go beyond Millennium Development Goals by 2016. Therefore, I propose to allocate Rs. 1,500 million to intensify poverty reduction initiatives targeting the remaining poor. The Government also invites development partners and the private sector to join this national effort, as resource providers. I hope that the business community, banking and financial institutions, tourist hotels, plantation companies and large industrial establishments will participate in this national effort by implementing special poverty reduction programmes, and fulfil their corporate social responsibility.


9. Towards a Value Creating Economy


9.1 Honourable Speaker, the most important pillar of our strategy towards national reconciliation and towards realizing a poverty free Sri Lanka is to build our economy while enabling the generation of gainful livelihood opportunities to all. This requires us to engage an institutional framework and an incentive structure, to promote household economic activities, SMEs and the private sector to facilitate expand their investment and production. Divi Neguma has reached over Rs. 2.5 million households engaged in food production, livestock and cottage industries that provide food security and generate supplementary income. The wide range of livelihood promotion measures provided for in this Budget under different line ministries will be further intensified to elevate low income families to higher income levels, by 2016.


9.2 Honourable Speaker, over the years we have got used to relying on few countries for our export and imports. Similarly, we have relied on few commodities and services to earn foreign exchange. A bulk of our exports is still in primary form. Industries such as the apparel industry rely heavily on imported raw material. The rise in oil prices has imposed an extra burden since importation of petroleum products requires foreign exchange in excess of US$ 6,000 million.


This is almost 100 percent of the remittance income from overseas employment of our people. Hence, diversifying domestic production, export earnings and external markets was required.


9.3 Honourable Speaker, we have made remarkable progress in this regard. We no longer import rice other than for the limited use in tourism and for the diplomatic community. We have managed to produce our full requirement of maize and black gram. We have now embarked on an accelerated food production program to produce onion, green gram, sugar, milk etc. Towards promoting import replacement activities, farm gate prices of agricultural produce have been maintained at attractive levels. We continue to provide the fertilizer subsidy, seeds and credit to encourage farmers. We have made heavy investments in irrigation systems to improve the water supply essential for farming. We have expanded exports of plantation crops and mineral resources in a value added form, to be able to get maximum value for our raw material.


9.4 Honourable Speaker, Income Tax rate on all business activities has been reduced. Regulatory arrangements and approval processes for investments are being simplified to facilitate private investments.


The skill levels of the labour force are being raised to increase local productivity and enable greater earnings from overseas employment. Investments in port cities of Trincomalee, Hambantota and Colombo are encouraged to attract export industries and services. A Nano


Technology Park and an IT Park have been setup to attract investments in those sectors. A Sports Economy is being promoted to drive investments in associated industries and services. Diverse tourism product development is encouraged to attract high spending tourists. The underutilized assets vested with the Government in 2012, have been revived with wider private investments and management arrangements. Payment of compensation for related claims is being arranged. Underscoring these improvements, Sri Lanka has climbed to the 81st position in the ‘Doing Business Index’ ranking that covers 185 countries. Our aim is to position our country among the top 30 countries conducive for ‘Doing Business’. In this context, we are on the path to realize the targeted private investments of 25 - 27 percent of GDP.


9.5 Honourable Speaker, the transformation towards a value creation process can realize a US$ 100 billion economy by 2016. It has a potential to raise exports to around US$ 15 billion and keep imports at around US$ 18 billion. We expect tourism to generate US$ 2.5 billion and the remittance economy to reach US$ 10 billion. Export of services from free port investments and transshipment port services could generate US$ 3 - 5 billion net earnings. These outcomes will elevate our country as an upper middle income economy that is free of poverty, before 2016.


10. Recovery from the Drought


10.1 Honourable Speaker, our country went through a costly drought cycle which has just ended with the setting in of monsoon rains. The drought has affected the Yala cultivation of paddy and some longer term crops such as coconut. The inland fishery industry also suffered heavily. Many people lost access to drinking water, while their day-to- day livelihood was also affected.


10.2 The Government proceeded to rehabilitate irrigation facilities using the drought as an opportunity to develop irrigation schemes, following consultations with the people to resolve their problems associated with the drought. Accordingly, around 972 irrigation schemes recommended by farmer representatives were rehabilitated. In fact the farmers requested to create more livelihood opportunities, instead of handouts. In this context, the Government implemented 1,617 cash for work programs providing a monthly income of around Rs 5,000 for those engaged in such work. The Government spent about Rs. 4,600 million for this rehabilitation programme. I salute our farmers for maintaining the pride of agriculture through proposals they shared with us in order to manage the drought. Although farmers do not expect handouts, I propose to provide the seed paddy requirement for the Maha cultivation free of charge to all farmers in affected areas, to provide relief. I have also requested banks to defer the recovery of related agricultural loans, till after the Maha harvest. I also propose that interest charged on these loans be written-off by the banks, all together. Therefore, I propose an allocation of Rs.1,000 million in support of these initiatives to assist about 100,000 affected farmers to recover from the drawbacks of the drought.


10.3 Honourable Speaker, in the future, the economic loses of drought must be managed in a more meaningful manner. Therefore, I propose to implement a Crop Insurance Scheme for all farmers who are using the fertilizer subsidy, from 2013. Necessary legal amendments will be introduced to make it mandatory for banking, finance and insurance institutions to pay a levy of 1 percent from their annual profits to the National Insurance Trust Fund, to meet such casualties. The farmers who are benefiting from the fertilizer subsidy will be made policy holders of this compulsory insurance scheme by requiring them to pay Rs. 150 per every 50kg of chemical fertilizer issued under the fertilizer subsidy scheme.


11. A Green Environment


11.1 Honourable Speaker, the destructions caused to natural forestry, rivers and reservoirs, rain forests, animals and wildlife, have resulted in severe hardships to the entire world. This is why Mahinda Chintana -Towards a New Sri Lanka, recognized a green environment as a corner-stone of our development. Our nation experienced tremendous hardships during the recent drought. During rainy seasons we also witness landslides causing similar destructions to life. Therefore, I propose a 3 year forestry and environment conservation initiative, targeting to preserve diverse natural resources throughout the country. Though this, I propose to expand the forestry coverage to 35 percent of land, targeting 250,000 hectares.


Conservation programs to preserve rain forests, reservoirs and the wildlife will also be an integral part of this programme. I propose an allocation of Rs. 500 million in 2013 and commit Rs. 1,500 million to be utilized over a 3 year period for this national initiative.


12. Pesticides and Chemical Fertilizer


12.1 Honourable Speaker, the increased usage of pesticides and chemical fertilizer has adversely affected our soil, water and the bio-diversity.


There is a theory that pesticides and chemical fertilizer contribute to increase non-communicable diseases. Therefore, regulations will be formulated to require suppliers and distributors of all agro chemicals to comply with quality standards so as to ensure that harmful effects are minimized.


12.2 I also propose to encourage Ceylon Fertilizer Corporation to procure organic fertilizer from small and medium scale fertilizer manufactures who have complied with recognized quality standards at a guaranteed price of Rs.400 per 50kg bag. I also propose to exempt all transactions connected with manufacturing, distribution and marketing of organic fertilizer and pesticides, from all direct and indirect taxes in order to encourage the private sector to enter this important field of investment.


13. Renewable Energy


13.1 Honourable Speaker, with advancements made in the economy, the demand for energy is on the rise. The cost of petroleum products has risen by unmanageable proportions. In 2000, Sri Lanka spent only US$ 902 million for the importation of oil. This increased to US$ 1,657 million in 2005 and to US$ 3,040 million by 2010. This year the estimated cost is US$ 6,000 million. This is 1/3 of the total import cost. If not for the implementation of the Upper Kothmale Hydro Power Project and accelerated implementation of the Norochcholai Coal Power Plant, oil import cost of our country could have increased to well above US$ 7 billion, by now.


13.2 In this Background, it is necessary to encourage the exploration of remaining hydro potentials, solar and other renewable energy sources. I propose to exempt solar power systems and such other renewable energy equipment which are not manufactured in Sri Lanka from taxes imposed at the point of imports. I also propose to reduce Income Tax on such projects to 12 percent. I propose to exempt income from energy crops such as gliricidia cultivation particularly in coconut estates for a period of 10 years, since such crops provide a good source of energy. I also propose to grant a lump sum depreciation on capital assets used to generate renewable energy for industries, provided at least 30 percent of the related energy requirement is generated through renewable sources.


14. Irrigation


14.1 Honourable Speaker, the availability of quality food and water is essential to ensure the prosperity of a nation. This is why our Government has undertaken to develop irrigation systems islandwide.


The construction of irrigation schemes such as Weheragala, Welioya and Wemedilla have facilitated the cultivation of 20,674 hectares, in addition to improving the availability of water for people living in those areas. The construction work of Moragahakanda, Uma Oya, Deduru Oya, Rambukkan Oya and Yan Oya schemes will provide irrigated water to dry zone areas in the Southern, Northern, Eastern and the North Western Provinces. The total expenditure on account of these investments is around Rs. 102 billion. Our target is to complete all these schemes before 2015. Feasibility studies have been undertaken to divert the Kelani River to Ma Oya and Deduru Oya, to improve water availability in the North Western Province. Nilwala River diversion is being studied to improve water availability to the South. The development of these major irrigation systems will enable our country provides benefits to 250,000 families.


14.2 Honourable Speaker, apart from the contributions made by our irrigation engineers and technical staff towards the massive irrigation development programs in the country, there is a silent force at the Kolonnawa Government Factory, contributing to irrigation engineering. I propose to allocate Rs. 300 million to begin a skills development initiative for that workforce and to refurbish and modernize the machinery and equipment in this strategic institution, which commands valuable engineering skills.


15. Drinking Water


15.1 The provision of quality drinking water to our population is given high priority in our development strategy. Several water schemes in Kandy, Dambulla, Ampara, Hambantota, Colombo, Balangoda, Trincomalee, Puttalam, Chilaw, Vavuniya, Mannar, Kilinochchi, Jaffna and Anuradhapura have been implemented to expand access to water during the next 3 years, to 580,000 families. The related total investment in 2013 is around Rs. 126 Billion. The Government has secured a Rs. 25 billion funding arrangement to modernize the Greater Colombo Water Distribution System and to reduce nonrevenue water consumption from 47 percent to 17 percent by 2016.


The implementation of scheduled water supply schemes for Kurunegala, Ratnapura, Badulla, Hali-Ela, Mahiyangana and Bandarawela, will provide access to drinking water facilities to one million families in these areas, during the next 3 years. In order to strength community water supply schemes, a Trust has been created on the basis that technical and maintenance support will be provided and managed by the Water Supply and Drainage Board. I propose to allocate Rs. 250 million to rehabilitate existing water schemes in 2013.


16. Self Sufficiency in Agriculture


16.1 Honourable Speaker, a rapid expansion in food production is essential to ensure nation’s food security. The ongoing rehabilitation of existing irrigation systems and the construction of new reservoirs and irrigation systems will provide irrigation to about 125,000 hectares of cultivable lands in the dry zone. Ensuring the storage capacity expansion required to maintain adequate stocks of paddy and other grain, the Government has set up a 70,000 Mt capacity granary at Oya Maduwa and similar storages will be constructed in other major agricultural districts as well. In order to rehabilitate the storage facilities of the Paddy Marketing Board and the Cooperatives, Rs.500 million will be allocated. Divi Neguma programme will promote small farmers to develop their own backyard storage facilities, enabling their harvest to be kept for a longer period.


16.2 The farmer representatives, who met me during Budget consultations, requested the Government to ensure the availability of quality seeds and planting material at market places. In this background, seed and planting material farms among small farmers will be encouraged, under accreditation by seed certification services.


I propose to grant a triple deduction for expenses incurred by the private sector for research and development of locally sustainable high yielding seed and planting material, with the participation of Government research organizations. The farmer representatives, who met me during Budget consultations, praised the availability of fertilizer at Rs. 350/ 50kg bag for paddy cultivation for 8 long years.


They requested Government to ensure a stable market environment for their products. Therefore, I now propose to raise the guaranteed price for paddy from Rs. 28/- to Rs. 30/- per kilo at present, to Rs. 32/- to Rs. 35/- per kg from next Maha cultivation season. I also propose to guarantee Rs. 40/- per kilo for organic fertilizer used paddy.


17. Promoting High Value Added Agriculture


17.1 Honourable Speaker, renewed interest in agriculture, gathered under our Government is encouraging. Our aim is to reach zero level of imports pertaining to red onions, maize, green gram, black gram, cowpea, soya beans, ground nuts, gingerly and kurakkan by 2015.


We plan to reach 50 percent self-sufficiency in big onions, dried chilies and potatoes by then. There will be high taxes and stringent quality controls imposed at the point of import, to encourage local production of these commodities. I propose to implement a special project to set up model green-house farming targeting 1,000 young commercial farmers supported through the provision of seed, planting material and green house technology, to engage them in fruits, vegetable and subsidiary crop cultivation. The Government’s decision not to permit the filling of abandoned paddy lands will be strictly enforced. Further, I proposed to allocate such lands among those who like to cultivate short term fruits, vegetable and floriculture on lease arrangements with the Government, unless owners assert their rights to such lands and put them to productive use in agriculture, before 30th June 2013.


18. Marketing Network


18.1 Honourable Speaker, it is the responsibility of the Government to ensure the availability of essential food at affordable prices to low income people. Therefore, the establishment of a Sathi Pola in every township will provide a least cost method to facilitate consumers and suppliers. These markets will provide facilities for small producers to market their products. I also propose to expand the facilities of small trading communities that are engaged in self-employment businesses using pavements and mobile vehicles, to have access to mass market needs. I also propose to make a capital contribution of Rs. 500 million to expand the Lak Sathosa retail network up to 1,000 outlets over next 3 years to provide marketing facilities for low income people. Lak Sathosa will make procurement arrangements with local suppliers of food and vegetables. A branch of Osu-Sala will also be setup in every Lak Sathosa retail shop to provide essential drugs at affordable prices.


The Cooperative system will be encouraged to expand their Coop-City Market Network. Similar market arrangements will be promoted through the Fisheries Corporation to supply fish products at affordable prices.


19. The Sugar Industry


19.1 Honourable Speaker, Sri Lanka had a solid sugar industry until early 80’s. The industry at that time produced 30 percent of the country’s requirement. The privatization of the sugar industry during the UNP regime did not contribute to any expansion of that industry. Farmers engaged in sugar cane cultivation in many areas lost their living.


Sugar production declined to less than 6 percent of the local requirement. Private owners engaged in this industry used it largely to manufacture raw material for liquor production. It is in this background that the Government intervened to reengineer such underutilized assets in the national interest. The Government has revived the Pelwatta and Sevanagala sugar factories. Steps are being taken to revive the Kantale and Hingurana factories as well. The Government has identified about 130,000 hectares of cultivable land in several districts for sugarcane farming through smallholder arrangements.


19.2 Sri Lanka spends annually about US$ 450 million for the importation of sugar. The development of this industry will help to save such large outflow of foreign exchange. Further, Ethanol and Bio diesel, and many other byproducts could also be made from sugar. Average income from a hectare of cultivation is estimated at around Rs. 30,000 per month. In order to encourage the production of local substitutes for sugar such as juggery, honey and sugar, I propose to permit tapping of coconut trees on a similar basis to Kitul trees. I propose to maintain import taxes on sugar, in order to ensure a good farm gate prices for these local products and popularize them in the market.


20. Dairy and Livestock Industry


20.1 Honourable Speaker, dairy and livestock industry is another unique economic activity that can be expanded rapidly in our country. When I heard the story of a woman entrepreneur from Monaragala who engages herself in dairy farming with 7 cows, each giving 10.5 liters of milk per day, that generates a daily income of Rs. 3,675 - I realized how successive Governments have failed to exploit the full potential of this industry in our country. Late Mr. S. Thondaman made a significant commitment to develop this industry when he was the minister in charge of this industry. But he did not get the required support. In this background Sri Lanka became a diary importing nation. The promotion of dairy production in our country will save US$ 350 million of foreign exchange and will generate new income sources for our rural entrepreneurs.


20.2 Therefore, I propose to maintain high taxes at the point of Customs on imported milk powder, to encourage local milk production. This will guarantee a farm gate price of Rs. 50 per liter for fresh milk and promote around 160,000 dairy farmers. Research engagement by the Sabaragamuwa University in the areas of artificial insemination in cattle is encouraging. Research knowledge must also be directed to find how small dairy farms could increase their production to well in excess of 10 liter per day. The National Milk Board and MILCO will also expand their factory capacity at Digana, Polonnaruwa and Ambewela to increase fresh milk production and dairy products at a cost of around US$ 40 million.


20.3 The Divi Neguma initiative has popularized poultry farming in household backyards. The distribution of chicks and other support services have not only increased egg and meat production but also provide additional family income. In order to create a competitive market environment for large scale manufacturers in this industry, the price ceiling on poultry has been replaced by a formula pricing, which will take into account the of cost of production. I propose to reduce income tax on poultry industry to 10 percent. The industry is expected to generate an exportable surplus, feed the emerging demand of the tourist industry and also ensure food security.


21. Fisheries and Aquatic Resources


21.1 Fisheries sector development is another priority of our Government to promote food security, increase livelihood activities and economic growth. Public investment has been diverted for the maintenance of the modern fishery harbour network, provision of storage and marketing infrastructure facilities, vessels and fishing gear and assistance for coastal deep sea and inland fisheries as well as aquaculture activities.The Government has invested Rs. 300 million to launch Samudrika – the first vessel to promote ocean based research. I propose to enhance budgetary provisions by Rs. 2,000 million for the development of 4 fishery harbours at Silawathura, Dandara, Guru Nagar, Kalamatiya and the rehabilitation of Mirissa, Hikkaduwa, Beruwala, Galle, and Hambantota fishery harbours and all anchor lodges and fish landing centers. These development initiatives will benefit about 25,000 fishermen. Housing and community facilities of the people engage in this sector will be upgraded to improve their living conditions.


21.2 Since inland fisheries severely suffered due to recent droughts the production and distribution of fish fingerlings will be encouraged as a priority activity. Incentives have also been provided to attract investments in processing activities of fish products. In this regard, I propose to maintain high taxes on imported canned fish and lower the taxes on required raw material, to encourage the local fish canning industry. I also propose to maintain high taxes on imports to encourage dried fish and other related processing industries.


Development in the fisheries sector particularly the manufacturing of dried fish and canned fish will contribute to reduce the import cost which is around US$ 150 million per year.


22. The Ocean Economic Development Strategy


22.1 Honourable Speaker, our country owns a wealth of ocean and coastal resources. Our sea bed is 27 times of our island. This is the most valuable economic asset of our country, considering the vast mineral, gas and oil resources available. One of our key priorities in the post conflict development environment is to take a complete assessment of the full economic value of our ocean resources and to develop an Ocean Economic Development Plan. I propose to setup a National Secretariat for Ocean Economic Affairs. This Secretariat will be entrusted to drive the United Nations plans for the sea bed land. I propose an allocation of Rs. 200 million to set up the proposed Secretariat.


23. The Plantation Economy


23.1 Honourable Speaker, the plantation economy which was once very big has gradually transformed in to a small holder plantation. A 75 percent of tea and 90 percent of the rubber and coconut plantations belong to smallholders. Cinnamon, pepper, cocoa and other crops also belong to smallholders. This enables a large percentage of the population to be engaged in a cost effective self-employment centric economic activities. It provides profitable economic assets on which people can build up their capital. In order to sustain the progress in this sector which generate US$ 2,500 million export income and engage 250,000 families in a wide range of employment, it is necessary to promote systematic improvements in the cultivation of all these crops, each year.


23.2 I propose to increase the replanting subsidy from Rs. 300,000 to Rs. 350,000 per hectare from 2013 to encourage replanting among small holders. I also propose to increase the subsidy for new plantation from Rs. 150,000 to Rs. 250,000 per hectare. As certain tea plantations have aged, I propose to introduce a staggered replanting arrangement for those small holders to gradually move into new plantation. 25,000 acres of land underutilized by the plantation companies have been identified in terms of the Budget proposal announced in the 2012, to be re-allocated. I propose to distribute these lands on a 30 year lease basis for the development of small holder plantation crops among 12,500 entrepreneurial youth of low income families. They will be given assistance for land preparation and planting. I propose to provide Rs. 100 million to popularize mechanical instruments for tea plucking to assist tea smallholders to improve their productivity.


23.3 Honourable Speaker, the Government is working with international development agencies to mobilize long term financing to support plantation companies to develop their plantations. However, these loan funds will be made available only for those companies which have performed well in terms of best practices in plantation, value addition, welfare of workers and care for surrounding villages.


Performance evaluations will take in to account the post 1992 period, since plantation companies have been responsible for estate management. I propose to reward best performing companies by extending the applicable lease terms as well as facilitating long term funding arrangements while imposing new conditions on lesser performing companies requiring corrective actions to ensure full compliance to improve their performance. I also propose to reduce income tax on the export of tea to 12 percent provided such exports are made out of organic tea.


23.4 Honourable Speaker, rubber industry has gained considerable importance in production, export earnings and value addition.


Foreign exchange earnings from rubber product exports are fast approaching the export income of tea. I propose to accelerate rubber cultivation in Monaragala, Ampara, Vavuniya and Mullativu targeting smallholders in those areas. High quality planting material will be developed to ensure increased yield in rubber plantation. Divi Neguma programme will popularize rubber cultivation among households having land ownership up to 2.5 acres to promote a supplementary income.


23.5 Honourable Speaker, the interest in coconut cultivation and associated industries has revived significantly in recent years. The Government has already set a target of 3,650 million nuts to be produced by 2016.


Kapruka initiative has contributed to increase quality seeds to farms and to distribute 10 million plants among small holders to promote cultivation. The Government has now decided to distribute coconut plants free of charge to all cultivators up to 5 acres of land. In order to popularize organic fertilizer in coconut cultivation, I propose to allocate Rs. 100 million from the Coconut Development Cess. As a relief measure to recover from the effects of the recent drought, I propose that the Government will replace all such affected trees, free of charge. I also propose to maintain high taxes on the importation of vegetable oil to promote the coconut oil industry. Parallel to coconut cultivation, Kitul cultivation will be particularly encouraged in the Sabaragamuwa Province and Palmira cultivation will be encouraged in the Northern Province, to ensure increased availability of organic raw material required for a wide range of industrial products and food processing. As Sri Lankan natural cinnamon is unique, the Government has already taken steps to preserve its national identity in the global market, as we cannot permit to tarnish the brand value of Sri Lankan cinnamon.


24. Small Enterprise Economy


24.1 Honourable Speaker, small enterprises employee 35 percent of the labour force, representing 25 percent of the National Economy.


However, the performance of this sector is affected by various over regulating systems and procedures, taxes and levies imposed by the Government as well as provincial and local authorities. During Budget consultations with a cross section of people in this sector, their request was for simpler systems and procedures when dealing with government agencies. The removal of Debit Tax, Economic Service Charge (ESC) and the amalgamation of Nation Building Tax (NBT) and Provincial Turnover Tax, through my previous Budget, gave a considerable relief to small businesses. I now propose to exempt such businesses from NBT and Value Added Tax (VAT) so that they can operate in a completely tax free environment. I propose that the applicable annual turnover for taxation be raised to Rs. 500 million, to allow SMEs to benefit from the low tax rate of 10 percent.


24.2 I propose to maintain a tax differential between outputs and input at the point of Customs, to encourage small enterprises engaged in value added production such as processed spices, candle and josticks, dryfish, processed food and drinks and sweets. I also propose to allocate Rs. 200 million to support the pottery industry to gain access to better equipment and design to be able to manufacture specialized gift items preferred by tourists and also to set up attractive marketing centers connecting the Lak Sala network. A simplified arrangement will also made to enable them to have required raw material.


24.3 Small businesses cannot get sufficient access to credit as they do not have conventional bankable assets except the innovations and the commitment. Therefore, I propose to expand microfinance including leasing facilities through Samurdhi banking societies up to Rs. 500,000. I also propose to use Regional Development Banks to extend credit facilities based on Small Enterprise Group Guarantees. I propose to provide a bond to the value of Rs. 500 million to Lankaputhra Development Bank to implement a Credit Guarantee Scheme to underwrite credit risks of micro finance and other banking institutions to encourage lending to small businesses. I propose to promote 25 women small entrepreneurs from household economies in each district, in 2013 under the Divi Neguma program, to promote enterprise development. I invite all banks and financial institutions to provide venture capital finance upto Rs.10 million for such ventures in all districts using funds available in their Investment Fund Accounts.


24.4 The Legal Aid Commission and Bim Saviya program have made impressive progress in assisting small economies to resolve legal disputes and land titling issues in recent years. In order to intensify these services, I propose to enhance their budgetary allocation by a further Rs. 500 million in 2013 to implement special programs to promote small businesses to generate investment and employment.


25. Export Industry


25.1 Honourable Speaker, handlooms and similar domestic resource based value added products have gained considerable momentum in the global market. Since, these products require complying with international product safety requirements, I propose to allow such industries to claim actual expenditure incurred on product safety testing to improve their competitiveness in global markets. I also propose a 2 year depreciation allowance for apparel and other manufacturing industries, to modernize with advance technology, machinery and accessories, so as to be able to maintain their global ranking. I also propose to reduce the Port and Airport Levy on their daily used consumable items from 5 percent to 2.5 percent to improve the competitiveness of the apparel industry.


25.2 Our Government is working with emerging nations to gain greater market access to value added agricultural and manufactured exports to such countries from Sri Lanka, as our aim is not only to diversify our export products but our markets as well. I hope these measures will improve the competitiveness of these industries and assist them to transform the apparel industry to generate US$ 5,000 million while the manufacturing of value added tea and rubber products, jewellery, ceramics, machinery, electronics and other manufactured products would raise their export growth by 24 percent over the next 3 years.


26. Local Authorities


26.1 Honourable Speaker, our country has 335 Pradeshiya Sabhas, This includes the 12 Municipal Councils. All of them have income over Rs. 100 million per annum. 53 Urban Councils have income in the range of Rs. 25 million to Rs. 100 million. These Urban and Municipal Councils have considerable revenue potentials to fulfil their service obligations to the community. Many commercial assets belonging to these councils are not properly utilized. The operation of multiple taxes and fee levying activities has caused hardships to the community. Systems are complex and as such encourage irregularities. Therefore, I hope that local authorities will take steps to establish benchmark valuations for property taxes to overcome valuation complexities and update relevant license fees and other regulatory charges. I also propose that the local authority share of stamp duty collected by the Inland Revenue Department will be transferred directly to relevant local authorities, to do away with time consuming practices. I propose to amend relevant legislations to enable municipal councils which have budget surpluses to issue Medium Term Municipal Bonds equivalent to the 5 times of the surplus subject to a maximum of Rs. 500 million, with Treasury approval. I propose to allocate Rs. 750 million to the Maga Neguma program that connects villages to expand its activities to develop inner access roads in urban areas.


26.2 Honourable Speaker, 206 Local Authorities are receiving an annual income of less than Rs. 10 million. Therefore, I propose to provide direct cash grants to Pradeshiya Sabhas, to top up their income up to Rs. 10 million per annum. This grant assistance could be utilized only for capital works connected with upgrading of roads, weekly markets, maternity clinics, small dispensaries and three wheeler parks and such other facilities. The simplification of rates and charges imposed by various agencies operating under local authorities is a priority under this program. I propose an allocation of Rs. 1,700 million for this initiative, in 2013. I propose to exempt import duties and Value Added Tax on machinery and equipment imported by Local Authorities which have a strong revenue capacity to finance such imports. Since, most of the local authorities cannot afford to operate their own machinery and equipment centers, the Government will encourage accredited private sector construction companies, operating in respective local authority areas, to upgrade and provide these services.


27. Provincial Councils


27.1 Honourable Speaker, the National Budget provides Rs. 130 billion to the 9 Provincial Councils. They also raised Rs. 38 billion as revenue.


Government has placed significant emphasis on human resource development throughout the country. Expenditure earmarked for provincial education is Rs. 62 billion, while health related expenditure is Rs. 23.1 billion. The provision of free medicine, school uniforms and text books are done by respective line ministries. As the Government has already implemented an all island school and hospital network rehabilitation and improvement program, a coordinated effort between Provincial Councils and the line ministries have become important to ensure national standards and eliminate provincial disparities. Therefore, I propose that Rs. 2,000 million to be allocated among Provincial Councils based on the poverty head count numbers of each province, to undertake well-targeted poverty alleviation programs in poverty stricken areas, to go beyond Millennium Development Goals.


27.2 Honourable Speaker, the Government’s overall development strategy has strengthened new economies in each province and supported revenue needs of Provincial Councils. However, provincial revenue administration should be simple to facilitate business development.


Therefore, I encourage Provincial Councils to adopt a single uniform levy in place of all taxes, fees, charges and levies. In support of this move and to facilitate to do away with complex license fees and other levies, I propose to increase the motor vehicle revenue license fee with effective from January 2013. This increase is justifiable as the road network has improved considerably. I expect provincial revenue to increase by Rs, 1,500 million.


28. The 2013 Deyata Kirula


28.1 Honourable Speaker, capitalizing on already developed infrastructure, the 2013 Deyata Kirula Programme will integrate overall development initiatives in Polonnaruwa, Trincomalee, Batticaloa, and Ampara districts. This district integration is centered on the development of educational facilities, agricultural revival and poverty reduction. Polonnaruwa Royal College will be re-developed to its original national status, with all modern facilities and Ampara Hardy Technical College will be developed to university status. The development of all primary and secondary schools and the hospital network has been accelerated to be completed before 2013 - Independence. Minor irrigation facilities and storage facilities are the central focus in agriculture related development in these 4 districts.


The development of livelihood opportunities, market places, and sanitary facilities among households will be the focus under the poverty reduction strategy. All townships and villages will be connected through the road improvement program already in progress. The Government has committed Rs. 60 billion in 2012 /2013 Budget through respective line ministries, to facilitate the overall push to uplift these 4 districts.


29. The Sports Economy


29.1 The recent international sports events conducted in our country demonstrated great potentials in developing a sports economy. The Government initiatives to develop sports infrastructure facilities in various parts of our country have been supportive to uplift sports activities among our children and youth, promote tourism and related economic activities. The foreign income from sports activities in Sri Lanka is estimated to be around US$ 50 million. I propose to increase these earnings to about US$ 500 million by 2016.


This requires us to sponsor all season sport activities to attract international sports and stakeholders participating in such events. Therefore, I propose to exempt hotel expenses of sportsmen, trainers and sponsors, from VAT to attract international sports events taking place to Sri Lanka. I also propose to exempt go-carts and specially designed racing vehicles from the applicability of the Special Excise Provision Act to facilitate the availability of such instrument for such sports events.


29.2 Honourable Speaker, I propose to allocate Rs. 250 million as a line item expenditure to sponsor sports events at national levels for all school children, as education and child development must have sufficient exposure to diverse sports activities. Our country which is blessed with a youth population accounting for 26 percent, is privileged to host the first Asian Youth Conference, with the support of United Nations in 2014. In this background, I propose to provide Rs. 300 million to the National Youth Services Council to sponsor a special program to prepare our youth to participate in this event with discipline, charisma and sharpened knowledge.


29.3 The Colombo Race Course Ground has been developed as country’s International Rugby Stadium. It is equipped with all facilities for Rugby. An up market shopping complex has also being built in this one time abandoned facility. The conversion of the Old Dutch Hospital has promoted similar shopping facilities. I propose to accelerate the progress of international sports grounds currently being developed in various regions over the next two years, to ensure that facilities available in Colombo will be connected to all provinces.


30. Tourism industry Development


30.1 Honourable Speaker, the government strategy to develop the tourism industry to attract 2.5 million well spending foreign tourists and an equally large number of domes

 
 
 
 
 
 
 
 

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