ICCSL comments on Budget 2022; identifies both pros and cons

The International Chamber of Commerce Sri Lanka (ICCSL) in a statement says that Budget 2022 presented by Finance Minister Basil Rohana Rajapakse has several positive proposals that are critical for Sri Lanka’s future. 

Proposals to minimising the disparities in income levels between provinces, export development initiatives and strategies to increase in FDIs and relatively consistent tax policies are critical for pandemic recovery.

However, the proposal to levy a 2.5 percent Social Security Contribution on turnover will have an adverse impact on low margin businesses, including those subject to price controls and financial intermediaries. 

“As such, we recommend considering sourcing this contribution through established measures. SMEs for example will not be able to absorb a 2.5 percent levy in their gross profit margin. Contribution on turnover will also keep away potential FDI from big trading agencies potentially setting-up in the Port City,” the statement said. 

To attract FDI to Sri Lanka, the adoption of international/regional standards and regulations across industries will increase the efficiency for export and local sales and will also reduce the cost of imports. It is certainly in the best interests of Sri Lanka to follow the Technical Barriers to Trade (TBT) Agreement with the WTO, ratified by Sri Lanka. 

A one-off Surcharge Tax of 25 percent on persons and companies with taxable income exceeding Rs.2 billion could place a heavy burden on firms that are looking to expand and the VAT charged on the supply of financial services sector, which has provided moratoriums for the post-pandemic recovery of most sectors and importantly given that the moratoriums have been further extended, this could potentially lead to a weakening of the financial system in the country. 

The move to consolidate charges, which are currently being exacted by the Board of Investment (BOI), Export Development Board (EDB) as well as the Special Goods and Services Tax (Special GST), will be of great value for business development. 

The incentives extended for start-ups by doing away with the business registration fee and the creation of agro parks and three additional techno parks and mini supermarket networks at local level 
are welcomed. 

The targeted Rs.1.6 trillion fiscal deficit for 2022 is an improvement from the Rs.1.8 trillion deficit 
for 2021. 

The absence of emphasis on management of external debt and the related implications for dollar liquidity in the banking system is a notable challenge to the business community in Sri Lanka.

The ICCSL looks forward to an ongoing dialogue with the government and for the opportunity to play a catalytic role, given the ICCSL’s business connections in over 130 countries. However, the “proof of the budget proposals would be in their implementation and realisation”, said ICCSL Chairman Dinesh Weerakkody.