FTZMA urges govt. action on economic reforms and regulatory issues in year-end talks

Sri Lanka’s Free Trade Zone Manufacturers’ Association (FTZMA) held discussions with the government just before the new year, to share concerns and areas that need urgent attention.

The FTZMA met with Labour Minister and Economic Development Deputy Minister Prof. Anil Jayantha Fernando, addressing the key economic and regulatory concerns, including the continuation of the Simplified Value Added Tax (SVAT), proposed employment laws and restructuring the Board of Investment (BOI) to boost foreign direct investments (FDIs).

Prof. Fernando assured that the current SVAT system would not be abolished from April 1, 2025, as originally planned, due to the absence of a robust Value Added Tax refund mechanism. 

In a statement, the FTZMA shared that it was communicated that the government would maintain the SVAT scheme until an effective e-invoicing system is introduced to facilitate the necessary reconciliations.

A government-appointed committee is conducting a detailed review of the proposed Employment Act and is expected to submit recommendations within three weeks, to enhance legislative efficiency. Prof. Fernando stated that after the internal committee’s report is received, a Cabinet-appointed committee, involving all stakeholders, including the FTZMA, would be formed to ensure a balanced final version of the act. 

The FTZMA acknowledged that while the association had contributed to the bill’s original formulation, the outcome is not fully compatible with the proposals made during the public consultation. 

“There are pros and cons but on some of which we have compromised. In any case, it is rather better to unify all the scattered pieces of legislature into one,” the FTZMA said.

Prof. Fernando and the FTZMA agreed that the Economic Transformation Bill should focus on making Sri Lanka a competitive, export-driven economy and attracting FDIs. The FTZMA raised concerns that the current draft of the bill risks segregating the BOI into an inefficient entity, urging its restructuring. 

“The current act in its current form will segregate the BOI and create a humongous white elephant. Therefore, the FTZMA urges to restructure the BOI within, by making it a truly investment facilitation body and harmonise it with the other export promotion bodies such as the EDB, IDB and Commerce Department,” the FTZMA Chairman stated.

The FTZMA also called for a reduction in the 30 percent corporate tax rate to levels comparable with the service export sector, to enhance investment attractiveness. Prof. Fernando requested the FTZMA to submit proposals on the BOI restructuring, to further strengthen its role in attracting FDIs.

Further, the FTZMA cautioned against hastily signing free trade agreements (FTAs), without ensuring mutual benefits, particularly pointing to concerns over the Sri Lanka-Thailand FTA (SLTFTA). 

“We mentioned that the proposed FTA with Thailand (SLTFTA) would negatively impact Sri Lanka’s economy in the long run, as it has not been set up within the right framework of policies. Therefore, the government should have a wholesome approach in order to enhance the country’s economic welfare,” the association stated. 

In response, Prof. Fernando invited the FTZMA to propose revisions to address the uncertainties in the SLTFTA that could have adverse economic effects.

The FTZMA also raised concerns over the waste disposal systems in the industrial zones and monopolistic stance of INSEE Cement in waste management. Additionally, it pointed out that despite a reduction in electricity costs, the water rates in the zones had remained unchanged, urging the regulatory intervention. 

Prof. Fernando acknowledged the need for an integrated solid waste management system and emphasised a comprehensive strategy encompassing waste prevention, recycling, composting and disposal. The FTZMA also highlighted the water shortages and infrastructure deficiencies in some zones, requesting swift rectifications.

Prof. Fernando pledged continued support for the FTZMA’s efforts and received a detailed report from the association on the International Monetary Fund’s policy frameworks, particularly highlighting the economic strategies adopted by the East Asian economies.