EDB proposes tax cut on incremental exports in upcoming budget

• EDB chief Suresh de Mel says this could be the best way to encourage exporters within govt.’s limited fiscal space
• Says freeze on State sector hiring could partly solve labour issues faced by the private sector

Some form of a tax relief on incremental exports is the least that could be granted by the government from the upcoming budget given its fiscal constraints to incentivise exporters who continuously strive to add more capacity and bring foreign exchange at this critical juncture, according to the Export Development Board (EDB), the main export promotion office in the country. 

Speaking at a pre-budget forum held recently, EDB Chairman Suresh de Mel said this proposal had been there on the cards for some time and would prove very useful if it could be implemented 
in earnest. 

“There are some things we can do that is not going to cost that much. One of them is to give some sort of a tax relief on incremental exports,” de Mel told a webinar organized by the Institute of Chartered Professional Managers of Sri Lanka. 

At present, export incomes are taxed at 14 percent compared to 24 percent charged elsewhere for corporate income tax purposes. Although not linked to taxes, a year ago, the EDB proposed an Export Development Reward Scheme with the intention of encouraging export volumes by way of paying an additional 2.0 percent and 3.5 percent on their incremental export earnings for large and small & medium sized exporters respectively. 

After a brief setback suffered in April and May this year due to the virus resurgence, Sri Lanka’s exports earnings have continued to exceed a billion dollars in the three consecutive months through August.

EDB chief said the export earnings are on course to achieve the year-end target. 

Speaking further de Mel said the current suspension of fresh recruitments into the State sector due to fiscal challenges could not have come at a better time when the private sector is grappling with a persistent labour shortage, which has forced companies to operate below capacity.  

“The private sector has a big labour shortage and I think this will give the private sector some labour that would otherwise be working for the government. So, I think again this is not a cost but a saving and might give the export sector the workforce for their expansion and exports increases”, de Mel added.

Speaking on the way forward for exports, he emphasised on the need for developing exportable quality products via continuous value addition and tapping niche markets for durable success as Sri Lanka is not a major manufacturing powerhouse. 

In this backdrop, he called for budgetary support for the expansion of EDB’s ongoing Export Production Villages programme, establishment of Export Houses, which functions as intermediaries in the exports supply chain, and in marketing and promotional endeavours including the emerging social commerce, which has gained more traction as a result of the pandemic.