Budget 2016 Coverage – Proposals and Full Speech

Nov 20, 2015 (LBO) - Sri Lanka's Finance Minister Ravi Karunanayake commences the 2016 budget speech in Parliament. Key points: Proposals Micro, small and medium enterprises - Micro, small and medium enterprises find it hard to raise equity and debt financing with reluctance of financial institutions to lend to them. Advisory committee to develop SME business sector. - Policy for micro, small and medium entrepreneurs to cover all issues, regulate the sector - 500 million rupee credit guarantee scheme up to 75% of principal with participation of financial institutions to protect micro, small and medium scale sector. - Credit line of USD 100 million from ADB to support MSME lending Venture Capital for MSMEs - Venture Capital for MSMEs who can't provide collateral - Fund of funds will be set up for VC equity financing - Fund of funds comprised of Banks, Insurance Companies, state-owned funds such as EPF, ETF and foreign funds. International Finance Corporation (IFC), Asian Development Bank (ADB), private sector invited to contribute - The fund will lend to responsible VCs for a guaranteed minimum return. VCs will make equity investments in SMEs. - Incubators to be set up in mini industrial parks in Moneragala, Puttalam, Jaffna/Vanni, and Ampara. Private sector companies invited to operate in them. A three years tax cut of 50 percent to be granted. - Tax payable by Private Equity Funds or Venture Capital companies on the profits earned by providing funds to upgrade SMEs registered with the SME Board of CSE up to the trading level, will be reduced by 50% for a period of 5 years. - A reduction of 50% of the tax payable on profits from locally manufacturing of red clay tiles for a period of 3 years. Corporate Tax - Revise corporate income tax to two rate band system - higher rate of 30% and standard rate of 15%. Higher rate applicable for income of betting and gaming, liquor, tobacco and banking and financial services, including insurance and leasing industry and the trading activities. All other sectors at 15%. Long term concessions without policy rationale will be revisited Agriculture - Aim to make the country self-sufficient in maize, soyabeans, chilies, onions, and potatoes by 2018 through crop diversification and productivity - Increase yields from the sector lies in strong collaboration between the private and public sectors - Need to convert agriculture to agribusiness; Rs1,000mn provision for program to use underutilized state lands as incentive for private-public collaboration for high-quality seeds. - Companies that promote greenhouse technology and drip irrigation to be provided half tax holidays in order to encourage the production of high yielding seeds. - A guaranteed price of Rs. 50/kg for Keeri Samba, Rs.41/kg for Samba and Rs.38/Kg for Nadu and other varieties. This would help the consumer to get rice at Rs. 65/kg on average. - it is time we export our rice, EDB to explore branding rice for export Dairy Industry - Market share of the domestic milk industry is minimal. - Maximum retail price of a 400g packet of local milk will be reduced from Rs325 to Rs295, Subsidy of Rs30 to those produce 400g milk. Rs1,000 million to be used for the project Fisheries - We still import almost USD 150 million worth of fish and fish related products - One million rupee life insurance for fisherman. - Encouragement to private sector to engage in fish canning. To incentivize this industry, a buy back mechanism through Lak Sathosa Ltd., which would be sold at a concessional price of Rs. 125 each. This will help reduce cost of living. I propose to allocate a sum of Rs. 300 million to Lak Sathosa. - Agro and fish processing facilities in locations close to farm gate - an Agro Livestock and Fish Processing Park connecting the districts of Anuradhapura, Vavuniya and Kilinochchi. - To protect the local fisheries industry, increase of Special Commodity Levy (SCL) on import of fish to Rs. 50/-. - Shrimp industry has faced difficulties - capital and working capital requirements of the shrimp farmers, hatchery operators and processors through proposed ADB supported SME credit line. Propose to provide guarantees through the SME credit guarantee fund to those who are engaged in shrimp farming. Tea - Regional Plantation Companies established in 1992 have run its course. Time to rejuvenate them by restructuring into small manageable units so that all could seek listing on CSE. - Sri Lanka has less value-added tea in the market. So we encourage more value-added tea based products. A Working Committee to look over tea industry with both government and private sector. - We are planning to move towards a Tea hub. But to protect the “Ceylon Tea" branding I propose to look into labeling strictly. - Sri Lanka being one of the main tea producers of the world has lost ground on value addition to centers like Dubai. In the last few months the tea industry made strong submissions to liberalize tea imports to Sri Lanka. As such with the aim of developing Sri Lanka as a tea hub I propose to liberalize the tea imports to the country within a regulatory framework with a view to encouraging value addition through blending etc. I note that strict labeling requirements will be made mandatory so that the brand name “Ceylon Tea” remains uncompromised. - As requested by the coconut industrialists, it is proposed to import coconut for value addition in a specially designated area regulated by the relevant government entities, from where such products will be exported. The proposed importation of coconuts will be allowed subject to strict adherence to quarantine requirements. - Two year tax exemption for Tea and Rubber growers to incentivise - Strengthening the Tea Research Institute, Rubber Research Institute and Coconut Research Institute, so that they can engage in research in improving productivity, finding new varieties, and etc. Allocating a sum of Rs.200 million within a period of 2 years. - Sugarcane Research Institute and the Palmyrah Research Institute will be strengthened for which I propose to allocate a sum of Rs.100 million. - Arecanut industry has been neglected in the last decade with almost no support from the government. Given potential, encourage commercial cultivation of arecanuts and establishment of arecanut value addition zones, to take advantage of the export markets Spices - History of the Spice trade in Sri Lanka dates as far back as 7th Century. However, Sri Lankan spice trade has not yet lived upto its expectations. - Government will collaborate with Spice Council to undertake a branding exercise of Sri Lankan spices globally, for which allocationg of Rs. 150 million. - Sri Lanka has monopoly for supply of "True Cinnamon" with over 85 percent supply share in world market. Value chain of cinnamon is under many different agencies which stifles the growth of this industry. Therefore, I propose to set up a Cinnamon Development Authority with private sector participation to bring all activities in the value chain under one entity and I propose to allocate Rs 50 million for this purpose. Regional Economy - 14,022 Grama Niladari divisions to be developed into 2,500 cluster villages as complete rural economic units. - For this rural reawakening programme, a sum of Rs.1.5 million to each village which will amount to Rs.21,000 million. - Allocate Rs.2,000 million to rehabilitate small tanks and canals to support rural agriculture. - Sri Lanka has hundreds of species of plants and animals that rivals many countries of similar size. However, human activities and poor management practices has now threatened their habitats. Hence, I propose to allocate a sum of Rs. 4,000 million to be utilized within three years to programmes aimed specially at protecting wild life and addressing the human elephant conflict. - New economic zone in Vavniya, allocation Rs200mn Gem and Jewelry - Upgrade training courses offered by State Gem and Jewelry training institutions to train both trainers and the trainees to match with the current demand. International exposure in gem and jewelry related activities will be provided to the trainers attached to these institutions while scholarships will also be granted to students who excel in these courses. - To promote the sale of gems and jewelry, Sri Lanka to hold "Gem, Jewelry and Diamond" auctions in April and October every year. Private sector encouraged to open duty free gem and jewelry shops at the airport. - 50 licences to be issued for import of Gold without import tax; Proposal has been forwarded to Central Bank - 750 million rupees allocated for the harbor development of Chilaw, Mirissa, Kalmuniai, Karainagar, Poornawella - Investor friendly foreign exchange control - Exchange control act to be repealed and proposes a foreign exchange management bill - Liberalising the lubricant market, remove lubricants from BOI negative list - Thanks companies for one-off Super Gains Tax payments during hour of need - Abolish SIA Securities Investment Accounts, propose investors to be allowed to bring in money through any bank account - Proposes to remove the restrictions of leasing of lands to foreigners, and to consider to removing all restrictions on ownership of identified lands through the alienation act. - National digital identity platform to be established - 25 billion rupees as capital to setup import and export bank (EXIM) jointly by government and industry. Rs50mn seed capital from government. Will be listed on CSE. Operational from 1st of April 2016. - Exporters urged to remit proceeds to support motherland - Foreign reserves to be around US$10bn by mid 2016 - Foreign contractors must work with local contractors - Proposal to enhance Multilateral Trade ties with USA, China, Korea, South Africa, Saudi Arabia and Australia and to take necessary steps to strengthen ties with International Trade Agencies. - Expenditure incurred on Solar power by houses will be a qualified payment for tax - New tax structure to make a 'shopping paradise' on several items that will have lower import duties - Tiles, clay and sanitary wear to be removed from the BOI negative list - Public private partnerships for tourism sector training with incentives for companies - Colombo international financial centre - a specific zone in line with Dubai financial centre in DR Wijewardene MW. Casino center of the previous administration to be converted to Colombo international financial center such as the financial center of Dubai. - Tourism: We have not promoted Sri Lanka enough in the global arena. Tourism industry faces lack of skilled labor. Accordingly 3,000 students will be trained though public private partnership and 50 percent of the course fee will be born by the government. 100 million rupees would be allocated as a start to train workers through a public private partnership. - Encourage voluntary mergers of banks. Private sector, now its time to walk the talk - Return of cheques to be considered an offense - HDFC and State Mortgage and Investment Bank to be merged to create National Housing Bank - Lankaputra bank to be merged with Regional Development Bank to create Lanka Enterprise Bank - Creating a savings culture, with banking accounts for children - Sri Lanka Savings Bank to be merged with National Savings Bank (Divinaguma Bank to be merged with National Savings Bank) - Foreign holding limit of Government Securities reduced from 12.5 percent to 10 percent - Banks have to cease leasing activities from mid next year - Withholding tax to be withdrawn from 2016 for loan securities - Provisions to boost school infrastructure - Import duties to be removed on caravans, yachts, mini boats - Rs3,000 million to setup a new campus named ‘Mahapola University’ at Malabe with IT, Business Management - Interest free loans for university students to purchase laptops. Rs 300 million for this purpose. - Kidney dialysis centres to be set up. - Stamp duty on credit card for local purchases removed, 2.5 percent for foreign purchases - Every student to complete advance level education or receive vocational training after ordinary level education to be made compulsory. - 300 million rupees will be allocated to implement Free Wi-Fi zones at universities - State owned enterprises will not be privatized - EPF and ETF to be amalgamated after the approval of trade unions - Forecast budget deficit of 5.9 percent in 2016 - Sri Lanka Budget 2016 reduced the prices of 11 essential commodities : potato 1 kg Rs. 75 - 85, big onions 1 kg - Rs. 85 - 95, locally produced milk 400g - Rs. 295 Infant milk 1 kg - reduced by Rs. 100, Canned fish - Rs. 125, Dry fish 1 kg - Rs. 1100 (MRP), Chickpeas 1 kg- Rs. 169 (MRP), Gas - reduced by Rs. 150, Kerosene - reduced by Rs. 10, Sprats 1 kg - Rs. 410 (MRP), Dhal 1 kg - Rs. 169 (MRP) - PAYE tax - increase the tax free annual threshold to Rs.2.4 million. - Nation Building Tax will be increased to 4 percent - VAT will be revised to 3 bands (0% , 8% and 12.5%) - Share Transaction Levy (STL) STL will be removed with effect from January 1, 2016. - Nation Building Tax (NBT) The present rate of NBT will be revised to 4%. The present exemptions on the following articles or services will be removed: - Telecommunication service - Supply of electricity - Lubricants The present threshold will be revised to Rs 3 million per quarter and the threshold of Rs 25 million per quarter will be removed except for any locally procured agricultural produce in the preparation for sale. Budget speech concludes. The budget speech can be downloaded from here Full speech can be viewed below: bgtspeech2016E