Get down now to the business of development

Now that the executive and legislature have all that they asked for it is time to get down to the most critical aspect of business – meaningful action! 

Our leadership has its first opportunity to set the tone at the government budget presentation next month, as the country looks forward to a sustainable and effective roadmap to steer the nation and economy forward in this new milieu. 

Government revenue and reform are two critical aspects that require urgent attention, given the pressures of external debt repayment. 

The State must create a regulatory framework that encourages domestic production and global trade, and boost revenues to better service its obligations. Whilst long-term policy is imperative for growth, it must also discuss rapid short-term measures to address immediate concerns such as balance-of-payments. 

Bring back PAYE tax
One relevant consideration is to reintroduce Pay as You Earn (PAYE) tax to pre-November 2019 levels. The government lost a significant chunk of earnings with the withdrawal of this tax, whilst the revised format in April this year brought numerous complications coupled with lesser earnings. 

There were no qualms from the public about PAYE tax even before its withdrawal, and in reality, the government could have very well held on to it. PAYE could be reintroduced from January, together with Withholding Tax (WHT) at 5 percent on service fees payable to any resident individuals. 

Enough vehicles
The government announced last month it will extend the ban on vehicle imports for a year to control foreign exchange outflows.This ban could very well hold for another year and more.  Sri Lanka has adequate stocks of vehicles in its fold, and the government could consider only allowing imports for business critical and industrial functions. Close to 500,000 vehicles are registered in the country annually costing up to US$ 1 billion, and Sri Lanka likely has more active vehicles than it has households.

It must also be noted that vehicle prices in the country are outrageously higher than global norms due to our complex system of tax. The government could consider revisiting this composition as our exchange situation improveswith a view to support small and medium business entities. 

Be pragmatic with excise 
Excise tax on tobacco and alcohol products are often the centre of attention when discussing revenue enhancement, but given progress in this regard over the past few years we must be exercise caution with our approach.

Tax on cigarettes yield well over Rs. 120 billion annually, which is a significant part of government revenue, whilst high prices have made cigarettes difficult to access for most. This is reflected in falling volumes of cigarette sales. When considering further price revisions the government must be careful not to tip the scale whereby its drives consumers underground and diminish revenue to the State. 

There is also a great deal of discourse on a possible ban on sale of single sticks, which at the present juncture could prove detrimental. Such a measure could on one hand drive consumers to smoke more when they purchase entire packs, whilst others with lesser disposable daily incomes could switch to cheaper illegal alternatives. Sri Lanka is already a global hotspot for smuggled cigarettes, which in 2019 burnt a Rs. 20 Billion-plus hole in state coffers, and we must at all costs not compound this situation.

The same rings true for the local alcohol industry, with up to 80 percent of consumption estimated to be illicit. This is due to skewed pricing and a flawed distribution system that encourages consumers towards illicit as opposed to safer legal products.

Globally, spirits are priced significantly higher than safer soft alcohol products and Sri Lanka must make a turn in this direction in order to cultivate a safer drinking culture, plus, stabilize and grow revenues. Policymakers must revisit and review its licensing programme, and consider providing better access to consumers for safer soft alcohol products. For instance, away from urban centres, consumers at times must travel over 25 kilometers to reach the nearest licensed wine store which presents a significant amount of time, effort 
and cost. 

This naturally drives consumers towards harmful unlicensed products,which are cheaper and much easier to access. There are a great deal of proven pricing and distribution models from much of the region and the world that Sri Lanka can draw upon. In dealing with excise tax we must learn to be pragmatic with 
our approach.

Strengthen agriculture exports
It is also essential to strengthen restrictions on import of tea, rubber and other spices to the country. The Ceylon brand has in recent times been perverted by elements both locally and overseas feigning unsounded reasons. The government must take steps to protect our global brand name and identity, which stands for unique taste, quality and history. Local agriculture must continue to receive the highest form of support in terms of technical and material inputs, and government must develop capacity to enable farmers and marketers to take on further export markets. Importantly, this must include a national programme to encourage farmers and especially younger generations to consider agriculture and field work as honourable enterprise that serves a national interest.There is too much focus on white-collar jobs which are increasingly becoming few and far. 

The pandemic naturally poses a number of challenges to chartering a course for development. But this does not in any manner provide respite to our nation or leaders to adopt an approach of wait-and-see. Countries like Vietnam and Bangladesh – who recently overtook India for per capita GDP – are adopting aggressive strategies that engage the entire nation to achieve exponential growth, and it is this kind of concerted and valiant effort that Sri Lanka must take to recreate a platform for our accelerated growth. Time is once again running out. 

 (Patrick De Silva is an attorney-at-law and serves as a consultant to leading agronomic institutions in Sri Lanka and Australia with over three decades of experience. He can be reached at 
[email protected])