Ranil presents ‘foundational’ interim Budget

5 months ago

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Taxes revised including VAT to 15%, tax registration compulsory for adults
Retirement age down to 60, no. of Govt. employees to be ‘rationalised
New SOE Restructuring Unit and National agencies for public-pvt partnerships and debt management
Social safety nets to be strengthened with Rs. 46,600 mn, Rs. 2,500 addl. allowance for pregnant women

BY Buddhika Samaraweera President Ranil Wickremesinghe presented the interim Budget for 2022 yesterday (30) with a clear focus on reforms, stating that it would prepare the basic foundation for changing Sri Lanka’s economic trajectory, and that a comprehensive set of proposals would be presented in the Budget 2023 for the process of creating a new economy. “The Interim Budget is being presented today to Parliament, in order to prepare the basic foundation for changing the economic trajectory of our country. This is basic to the formulation of a national economic policy in accordance with the new world order. Based on this foundation, the Budget for 2023 will initiate the process of creating a new economy,” President Wickremesinghe, who is also the Minister of Finance, Economic Stabilisation, and National Policies, told Parliament. The Interim Budget included the revision of several taxes including the Value Added Tax (VAT), plans to rationalise the number of Government employees and reform State-owned enterprises (SOEs), the reduction of the retirement age to 60 years, consolidation of selected Local Government (LG) bodies, suspension of fossil fuel based vehicles for Government institutions, and provisions for strengthening social safety net programmes. The tax reforms pertained to the Income Tax, Value-Added Tax, the Telecommunication Levy, and the Betting and Gaming Levy, some of which have been already implemented and approved to be implemented. Accordingly, the VAT rate will be increased to 15% from the current rate of 12% with effect from tomorrow (1 September). In addition, it has been proposed to introduce compulsory tax registration for all residents who are above 18 years of age without considering their annual income and tax free thresholds. As a part of efficient expenditure management, it has been proposed to rationalise the number of Government employees. The President said that the Government has already allowed those who are willing to take no pay leave for five years or so, and go abroad or engage in educational activities in the country. The Government recently announced that Government employees who wish to go abroad for education or work can get five years of no pay leave. Attempts to contact the Public Administration, Home Affairs, and Provincial Councils Ministry Secretary, M.M.P.K. Mayadunne and Presidential Media Director Danushka Ramanayake to inquire whether permission has been given to Government employees to engage in educational activities in Sri Lanka, as stated by the President, proved futile. In addition, the Director General of Management Services will be tasked with conducting a work study covering the entire public service for the purpose of optimally obtaining services of the primary level employees in the Government entities, and to submit a report to the Cabinet of Ministers within three months. Noting that some of the SOEs have been making losses on a continuous basis due to issues of a structural nature that have existed for some time, and that such losses cannot be met endlessly from the General Treasury, the President said that attention should be paid in order to find an alternative mechanism so as to make them effective. Accordingly, it has been proposed to establish the “SOE Restructuring Unit” to facilitate the restructuring of Government owned business entities, and a sum of Rs. 200 million will be allocated for its implementation. It has also been proposed to re-activate the Statement of Corporate Intent (SCI) process for 50 key SOEs, excluding the Ceylon Electricity Board (CEB), the Ceylon Petroleum Corporation (CPC) and the SriLankan Airlines (as they are under different efforts to restructure), to closely monitor the set targets. The President also said that the Government is committed to implementing the recommendations in the final report of the Presidential Commission of Inquiry (CoI) into the Sri Lanka Customs. He said that the implementation of the said report will strengthen the corporate, administrative, and operational processes of the Customs so as to discharge its responsibilities effectively and efficiently. Following an observation that there has been increasing unrest among unemployed youth as the Government had decided to raise the mandatory retirement age of public sector employees to 65 years and that of semi-Governmental employees to 62 years, it has been proposed to reduce the retirement age of public sector and semi- Governmental employees to 60 years. Accordingly, those who have been employed beyond 60 years of age at present in the Government and semi-Government sectors will be retired as of 31 December 2022. Taking into account the fact that there are LG authorities which have ample revenue streams, while there are some LG authorities which do not have sufficient sources of revenue, a consolidation of such has been proposed. In order to provide a more efficient public service, and to facilitate efficacious administration, it has been proposed to merge selected Pradeshiya Sabhas (PSs) with a Municipal Council (MC) or an Urban Council (UC) adjacent to them. A total of 22 PSs have been selected for this programme as the initial step. Furthermore, the purchase of fossil fuel based vehicles for the public sector has been suspended as a Government policy. As per this policy, only electric powered vehicles will be purchased for the use of the public sector in the future and the private sector will also be encouraged to use electric vehicles. In purchasing vehicles for the public sector, suitable categories of vehicles will be decided on the basis of the efficiency and prices of the vehicles. This proposal will be implemented step by step and will be completed by 1 January, 2026. In addition, the provision of tax concessions for imported accessories and parts required in the manufacture of electric bicycles locally with more than 50% value addition has also been proposed. It has also been proposed to appoint a committee to review the activities of the project offices and project units that have been established for various purposes as such involves a significant number of staff and high amounts of payments. The proposed committee will review whether the intended purposes of such offices and units have been met and whether it is necessary to continue such entities, after which it will submit recommendations to the Cabinet within a period of three months. In addition, a national agency has been proposed to be established for the purpose of identifying and facilitating investments to be undertaken in partnership with the public and private sector. A sum of Rs. 250 million will be allocated for the implementation of this proposal. Further noting that it is important to pay special attention to the management of public debt, the interim Budget has proposed the establishment of an independent National Debt Management Agency under the General Treasury. Through the interim Budget, it has also been decided to cut some of the capital expenditure and find room to provide enhanced support for vulnerable communities. Under this, the Government has already spent an additional amount of about Rs. 31,000 million approximately from May to July, 2022, to provide an additional monthly allowance as urgent assistance to those who have been affected due to the loss of employment, the decline in agricultural output and the inability to cultivate due to many reasons. It has been proposed to continue this programme for a further four months in order to reduce the pressure of the economic crisis on the affected people. It has also been proposed to provide an additional monthly allowance of Rs. 2,500 for pregnant females in addition to the sum of Rs. 20,000 which is already being provided for them. Considering a revelation that there are about 61,000 food insecure families, which need urgent assistance, it has been proposed to provide a sum of Rs. 10,000 per such family for a period of further four months. A total of Rs. 46,600 million will be allocated for all the above programmes. It is further stated that as a geopolitically important country, Sri Lanka should work with everyone and design our defence policies accordingly in order to face emerging realities. Therefore, it has been proposed to have a review of the country's defence strategy called “National Security – 2030” in order to achieve these objectives and to develop the capabilities and knowledge of the Security Forces. Wickremesinghe also said that Rs. 133 billion was allocated under the World Bank loan assistance for the implementation of the programmes with the view to reducing the impact of the current economic crisis and restoring social stability. Accordingly, he said that following the receipt of the approval through the Supplementary Estimate presented to Parliament before presenting the Interim Budget, immediate relief was given to around 3.2 million people affected by the current economic situation. Under this programme, he said, the monthly Samurdhi allowance was increased to an amount ranging between Rs. 5,000 to Rs. 7,500 per month for approximately 1.7 million currently Samurdhi receiving families. Apart from that, an assistance of Rs. 5,000 was provided per month temporarily to around 726,000 families who are in the waiting list for expecting Samurdhi benefits.