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REVENUE TARGETS TO INCREASE BY 38.4%YOY IN 2016

The proposed budget is expected to achieve a total revenue target growth of c.38% YoY to LKR2032 bn steered by a 23.4% YoY increase from revenue generated from taxes. Income tax which accounts for c.15% of total tax revenue is expected to fall by 6.4% YoY while taxes on goods and services (accounts for c.63% of total tax revenue) is expected to rise by c.26% YoY along with taxes on external trade (c.23% of total tax revenue) by c.44% YoY.

RECURRENT EXPENDITURE TO RISE 17% YoY in 2016

The government budgets an increase 17.0% YoY increase in recurrent expenditure to LKR1,928.0 bn in 2016. Further recurrent expenditure as a % of GDP is expected to incline from 14.6% to 15.4%. State sector salaries and wages constitute circa 34% of the recurrent expenditure, where it is budgeted to grow by 6.9% YoY in 2016.

BUDGET DEFICIT CURBED TO 5.9% OF GDP

The budget deficit has been brought down by c.10 bps YoY to 5.9% (as a % of GDP) for 2016E cf. 6.0% in 2015. The marginal dip is on the back of increased recurrent expenditure while broadening the tax base through a simplified tax structure.

REVENUE PROPOSALS

Tax Proposals

Corporate Tax

– 30% – Betting and gaming, liquor, tobacco and banking and financial services, including insurance and leasing industry and the trading activities

– 15% – All other sectors

– Quoted companies to distribute minimum of 15% of distributable profits as dividends

Surtax on Tobacco, Liquor and Casinos

– Surtax at the rate of 25 percent of income tax liability

Customs Duty on Beedi Leaves

– Beedi manufacturing licence fee also to be increased from LKR1,500.0 to LKR5,000.0

Taxes on Liquor

– Every tax-paid liquor bottle must be labeled with a fool-proof sticker

– Increase the annual manufacturing license fee for a distillery to LKR150.0 mn

– Single fee of LKR150.0 mn for liquor manufacturers as an annual license fee instead of the present per bottle license fee system

– Excise Duty on liquor will be revised from mid night today

– Excise Duty of LKR250.0 mn per month from liquor manufacturers who are having distilleries and LKR50.0 mn per month from persons engaged only in liquor manufacturing

– Tax on all types of foreign liquor and imported ethanol to be increased on par with locally produced liquor-price increase

– Permission is granted to transport only 10 bulk litres of imported liquor

Personal Income Tax

– PAYE tax free annual threshold increased from LKR750,000 p.a. to LKR2.4 mn

– Above this limit to be charged at a uniform 15%

– This method and rate will also be applied for individual income earners instead of the present progressive rate of up to 24%

– Abolish applying 2.5% withholding tax on deposits with effect from 01st of January, 2016.

Economic Service Charge (ESC)

– Exclusion of profit making businesses and the minimum threshold of payment of LKR120.0 mn per year will be removed

– Rate will be increased from 0.25% to 0.50%

– Period of carried forward balances will be limited to 3 years

Value Added Tax (VAT)

– Minimum threshold for the liability for VAT will be LKR12.0 mn p.a.

– Wholesale and retail trade will be excluded from VAT

– Current single rate of 11% would be revised to 3 bands

0% – for export of goods and provision of services for payment in foreign currency outside Sri Lanka

12.5% – Services sector

8% – Manufacturing or import of goods (with the limitation of input tax)

– Present exemptions on the import or supply of telecom equipment or machinery, high-tech equipment including copper cables for telecom industry will be removed

Nation Building Tax (NBT)

– Preset NBT rate of 2% would be revised to 4%

– The present exemptions on the following articles or services will be removed:

– Telecommunication service

– Supply of electricity

– Lubricants

– The present threshold of LKR3.75 mn will be revised to LKR3.0 mn per quarter and the threshold of LKR25.0 mn per quarter will be removed except for any locally procured agricultural produce in the preparation for sale.

Betting & Gaming

– Entrance fee of USD100.0 per person imposed in the last budget will be removed

– Annual levy imposed on the business of gaming other than rujino, will be increased from LKR200.0 mn to LKR400.0 mn

Motor Vehicle Taxes and Levies

– Introduce a simple unit rate of excise duty for the vehicles on the basis of cubic centimeters. Duties on the percentage basis on certain vehicles will also be revised

– Reduce Excise duty to 2.5% for the vehicles which are run entirely on Solar, Hydrogen or Helium

– Vehicle Entitlement Certificate fee

Motor Cycle – LKR2,000

Three Wheeler – LKR2,000

Motor Car – LKR15,000

All other vehicles – LKR10,000

– A fee charged on the certificate of emission test will be enhanced to LKR5,000

– Unregistered vehicles to be registered before 31st March 2016.

Cars/ Vans – LKR1.0 mn

Other vehicles – LKR750,000

– Charges on valuation certificates

Motor Cycle – LKR2,500

Three Wheeler – LKR2,500

All other vehicles – LKR15,000

– For every 20 vehicles exported by the same exporter under this scheme, a 50% tax credit will be given for the importation of one motor car

– Abolish all the vehicle permits granted under different schemes, including to Parliamentarians

Stamp Duty

– Stamp duty of 1.5% the usage of credit cards for local purchases removed

– Stamp duty for foreign purchases will be increased to 2.5%

Mansion Tax

– Continue to be applicable except for condominium units

Ports and Airports Development Levy (PAL)

– Increased from 5% to 7.5%

– Plant and machineries used for construction, dairy and agricultural industries will be exempted

Custom Duty Structure

– The present 4 band tariff structure of exempt, 7.5%, 15% and 25% will be changed as exempt, 15% and 30%

Telecommunication Levies

– International Telecommunication Operators Levy (ITOL) on incoming calls will be increased USD 9.0 Cents to USD 12.0 Cents.

– Environmental Fee will be charged per tower at the rate of LKR50, 000 p.a.

– CESS levied at 2% for international transit traffic will be exempted

Embarkation Levy

– Increase the Embarkation Levy from USD25.0 to USD30.0. This will be applied for both ship and air passengers

Passport Visa Fees

– One Day Service – Adult LKR10,000

– One Day Services – Child LKR5,000

– Normal Services – Adult LKR3,000

– Normal Services – Child LKR2,000

– Increase application fee for dual citizenship from LKR250,000 to LKR300,000 per application and SAARC Visa fee to USD20.0 per application

– Introduce a fee of USD 250,000 for residence visa for a three year period and USD5 million for a permanent residence visa for foreigners, with the approval of the Cabinet of Ministers

Company Registration Fees

– Private Companies LKR60,000

– Public Quoted Companies LKR500,000

– Other LKR100,000

Financial Services

Colombo International Financial Centre (CIFC)

– The zone will cover a demarcated area in D R Wijewardena Mawatha, where a 300,000 square feet facility will be constructed

– Encourage the voluntary mergers of banks

– To merge the HDFC Bank and State Mortgage and Investment Bank (SMIB)

– National Housing Bank, Lankaputhra Development Bank (LDB) to be merged with Regional

– Development Bank (RDB) to create the “Lanka Enterprise Development Bank”

– Sri Lanka Savings Bank to be merged with National Savings Bank

– To link the Divinaguma Bank to the National Savings Bank

– Banks should cease in engaging in leasing business from 01st of June, 2016

– Banks should lend at least 10% of their loan portfolio to Agriculture, 5% to SME and

– 5% to Women and Youth

– Limit pawning business to a maximum of 5% of their loan portfolios

– Pawnbrokers Ordinance to increase the registration fee for pawnbrokers to LKR25,000

– Charges on cash withdrawals

Less than LKR1.0 mn : No charge

Between LKR1.0 mn and LKR10.0 mn : 2%

Above LKR10.0 mn : 3%

– Fee on bank drafts should not exceed LKR150.0 per draft

– Banks to expand their branch network by 15% by opening branches in lagging regions. Each of these branches will have to employ at least 6 employees

– Financial Institution Restructuring Agency (FIRA)

– The government will provide initial capital of LKR10 mn as equity and also issue a Treasury bond to the value of LKR.25 bn with a tenure of 5 years for the FIRA.

– 100% guarantee on all deposits of all the registered finance companies by end of January 2016

– Impose a cap on the interest rates offered by the Finance Companies

– 15% interest rate on deposits of citizens above 55 years up to LKR1.5 mn

– Banks to open a child savings account for every child attending school by depositing a minimum of LKR250 per child per year

 

EXPENDITURE PROPOSALS

Capital Markets

– Demutualize the Colombo Stock Exchange in 2016.

– Withholding tax to be removed on debt trading.

– Income tax to be removed on debt trading.

– Creation of a ‘’Bond Clearing House’’ to be able to trade government securities.

– Eliminate the share transaction levy of 0.3%.

– Eliminate stamp duty on share certificates.

– To introduce ‘Listed Real Estate Trust’s’ so that small investors would benefit on the growth in the real estate sector (LRET’s typically transfers the assets/ raise capital into a common pool which in turn distributes the profits to unit holders. This would provide capital and facilitate infrastructure development).

– Creation of a SME board on the Colombo Stock Exchange for less stringent listing requirements for SME’s.

– Local companies listing in the CSE will receive a 2 year tax concession. And this to be extended to three years if listing on a foreign stock exchange.

– Revise the exposure on Government securities for non-residents from 12.5% to 10% of the total outstanding stock of Treasury Bills and Bonds.

State Owned Enterprises (SOEs)

– All SOEs will be brought under a Government owned holding company.

– The shares of these enterprises to be passed onto a Public Wealth Trust (PWT)

– A new Public Enterprise Act to be enacted to provide the necessary legal framework.

– Key SOEs allowed to operate and be evaluated based on Key Performance Indicators (KPIs).

– Key SOEs encouraged to adopt a rating mechanism which would facilitate to access domestic and foreign capital markets.

– Government to provide legislative backing to strengthen the Public Utilities Commission of Sri Lanka (PUCSL) to include the National Water Supply and Drainage Board (NWSDB) and the Ceylon Petroleum Corporation (CPC) to use a more cost reflective transparent pricing mechanism.

– Exit partially or fully from those non-strategic investments in Lanka Hospitals, Hotel Developers PLC (Colombo Hilton), Hyatt Residencies, Waters Edge, Grand Oriental Hotel, Ceylinco Hospital and Mobitel by listing in the Colombo Stock Exchange (CSE) during 2016.

– Lak Sathosa to be restructured and expand its distribution network to 500 with a budget allocation of LKR1.0 bn.

– Special Purpose Vehicle (SPV) for the Southern Expressway and the Katunayake Expressway.

– Private investors invited to invest into the SPV and the Government to guarantee a minimum return.

– Establish a SPV for the Norochcholai coal fired power plant and the ownership structure of the plant to remain the same whilst CEBs liquidity position to improve.

– Ceylon Petroleum Corporation to collaborate with investors to form a company that would manage the oil tank farm in Trincomalee and the facility to be operated as a bonding warehouse.

– Salaries and allowances paid to all Chairmen’s and Directors on the Boards of SOE’s to be specified.

– Restructure and reposition SriLankan Airlines.

– Ground handling and catering operations to be managed as separate institutions serving all airlines.

– Mihin Lanka to concentrate on its operations on domestic routes and limit its operations to selected international routes.

Investment promotion

– The government plans to restructure the BOI, Export Development Board (EDB) and the Sri Lanka Tourism Development Authority (SLTDA) Meanwhile an agency for development would be appointed until the restructuring process in completed.

– An investment of USD2.0 bn to be made in in areas such as oil refinery, renewable energy, integrated car manufacturing, fertilizer and manufacturing of triple super phosphate, satellite technology, air craft repair and logistical support and the integrated sugar industry.

– Removal of tax on lands leased to foreigners.

– Removal of restrictions on ownership of identified investments imposed through the Land (Restrictions on Alienation) Act.

– Foreign Exchange Management Bill (FEMB) to attract foreign inflows.

– Foreign currency inflows will be income tax exempt.

– Income from dividends on investments in listed shares made by non-citizens and foreign companies through inward remittances will be exempted from income tax.

– New Export Processing Zones (EPZs) will be set up and entrusted to private sector management companies to be managed.

– A 50% tax reduction for a period of 5 years will be given to companies that set up in lagging regions of the country through a minimum investment of USD10.0 mn (excluding land and building) or 500 new employment opportunities. The period will be extended to 8 years if more than 800 jobs are created.

– Liberalization of the lubricant industry.

– Lubricants removed from the negative list.

– Liberalization of the bitumen industry.

– Profits from expansion and modernization of existing businesses by investing in machineries and based on creation of new jobs, will be subjected to a half tax rate for 3 years.

– Revision of the “Revival of Underperforming Enterprises and Underutilized Assets” act No. 43 of 2011.

– The Strategic Development Act will continue to avail concessions to existing companies while for new investments the New Investment Act will be enacted.

– Extension of tax incentives to those private sector companies who wish to invest in mixed development projects while existing companies who have already applied for concessions will be made privy to the same.

– Super Gains Tax is one-off. No future taxes.

– Abolishment of Securities Investment Accounts (SIA) and allow investors to bring in money through any bank account.

– Licenses will be issued through a competitive transparent bidding process to the private sector to engage in deep sea bunkering.

– Government land will be allocated in Hambantota and Trincomalee for ship building, ship breaking and ship repair activities.

– Private and public sector to engage in manufacturing of triple super phosphate in the country to generate savings in foreign exchange and to provide relief to farmer through affordable fertilizer.

Export Promotions

– Export Development Council of Members (EDCM) to take policy decisions and clear bottlenecks

– Export Import Bank (EXIM Bank) will be formed with an initial capital of LKR25.0 bn subscribed jointly by government and the industry. Further a seed capital of LKR50.0 mn will be allocated by the Government and will be listed on CSE (commencing on 01st April 2016).

– Mandatory for diplomatic missions to provide a market guide on products and services of interests to local businesses.

– Sri Lanka Export Credit Insurance Corporation (SLECIC) to expand and enhance the export insurance coverage schemes

– LKR100.0 mn allocated to Intellectual Property Office to facilitate the accession to the Madrid system by amending the trademark law and upgrading of physical and human capital.

– Establish one-stop-shop at Sri Lanka Customs

– The present single rate Value Added Tax will be revised and taxed at 0% for export of goods and provision of services for payment in foreign currency outside of Sri Lanka.

– “Export Cess” will be removed on pepper, cloves and nutmeg to encourage export of value added products.

– Unutilized government land to leased out to the private sector to grow spices such as cinnamon, pepper, cardamom, nutmeg etc. to enhance production and export revenue. Further LKR50.0 mn to strengthen Cinnamon Research Unit at the Department of Export Agriculture.

– Concessional credit will be provided to encourage engagement in ornamental fish industry

– LKR2,000 mn will be allocated to establish specialized agricultural and fishery export zones

Development of Micro and SME Sector

– A “SME Policy” formulated to partner the growth of Micro Small & Medium Enterprises (MSMEs) and to cover the various issues faced by the SME sector.

– A Bill will be presented to govern the Micro Finance Business.

– Establishment of a regulatory authority for streamlining the SME sector.

– All Micro Financing Agencies to be registered with the proposed authority by paying an annual fee of LKR 25,000 per unit.

– Implementation of a MSMEs Credit Guarantee Scheme in 2016 with LKR 500 mn as an initial capital, contributed jointly by the government and selected financial institutions. Where 75% of the principal due of the total facility (if in default) will be guaranteed.

– A credit line of USD 100 mn obtained from the ADB to support MSME lending at concessional rates.

– Banks, Insurance, EPF & ETF to fund SMEs through equity funds.

– A corporate tax reduction of 50% for a 5 year for Private Equity Funds and Venture Capital companies with effective from 1st April 2016.

– LKR 150 mn to be allocated for constructing mini industrial parks in Moneragala, Puttalam, Jaffna/Vanni, and Ampara.

– A 50% tax reduction for 3 years on the applicable tax rates of SMEs and companies creating incubators for SMEs (excluding splitting or reconstruction of an existing SME) for investing in the designated areas.

– Sri Lanka Export Credit Insurance Corporation (SLECIC) encouraged to support the SMEs to enter to international markets.

– Banks to lend at least 5% to SMEs and support the future growth.

– A new SME board to be created on the Colombo Stock Exchange with less stringent listing rules.

– LKR 30 mn to be allocated for training employees of the SME sector.

Transport, Shipping and Logistics

– Establishment of “Railways Development Council”

– Allow railway track sharing with the private sector to use the railway tracks at a fee for the purpose of transporting goods and for tourism.

– Kelani Valley line will be modernized where the speed and the carrying capacity will be increased.

– Introduction of “Park and Ride” system. This would require the vehicles coming into the city to carry a minimum of 4 persons to avoid a fee.

– Public sector to partner the private sector to build and operate monorail projects connecting Negombo- Katunayake- Colombo and Colombo- Kaduwela.

– Private sector to initiate transportation options utilizing waterways.

– Government to pursue an open sky policy with restriction free traffic.

– 3 new domestic airports to be established at Digana, Badulla and Puttlam through a PPPA.

– Exempt airlines using domestic airports from ground handling charges and other fees whilst only a license fee of LKR1.5 mn per annum is applicable on such airlines.

– Increase the over flying charges of commercial planes by 20% from 1st January 2016.

– Utilize the Mattala airport as a cargo hub, especially for air freight.

– The throughput charges to be fixed at USD4 cents per kilogramme.

– Encourage the private sector to set up flying training school and Maintenance, Repairs and Overhaul (MRO) facilities within the Mattala Airport.

– Entry into international freight forwarding to be liberalized so that foreign participation could extend up to a maximum of 75% with a minimum investment of USD5 mn.

– Grant tax concessions on training and related equipment on freight forwarding business.

– Allocate LKR50 mn to strengthen the activities of Indian Ocean Marine Affairs Cooperation.

– Government to encourage ship financing, ship repairing, ship registry status, bunkering, arbitration and allied services which would governed by modern laws.

– Encourage the private sector to venture into suitable collaborations with Sri Lanka Navy.

Plantation Economy (Tea, Rubber & Coconut)

– Leases of Regional Plantation Company’s (RPC) that commits to a long term investment will be extended for 50 years, with management fees to be reviewed.

– Strict labeling with the brand name “Ceylon Tea” to be made mandatory.

– A two year tax exemption period to be granted for in tea and rubber plantation related industries commencing from April 1st 2016.

– Allocate LKR200 mn to encourage research done in institutes with regard to tea, rubber and coconut in order to improve productivity and find new varieties within a period of 2 years.

– Implement a commodity exchange regulated by the Securities and Exchange Commission.

– Allocate LKR 100 mn for implementation of rubber master plan.

– Allocate LKR250 mn for coconut cultivation rehabilitation program.

International Trade

– Introduction of a new legislation to ensure an efficient import and export system.

– Incorporate an International Trade Agency to further enter into Free Trade Agreements (FTA) with nations namely United States, China, South Korea, Singapore, Australia, South Africa and Japan.

– Enhance exports to EU through GSP Plus scheme which would be anticipated to be re-claimed by mid-2016.

Tourism

– Tourism development levy will be removed.

– Allocate LKR100 mn to provide training in hospitality industry.

– Grant tax benefits on establishment of training schools by private sector hotels.

– Create a MICE Triangle consisting of the BMICH, Nelum Pokuna Theatre and the New Town Hall.

– A convention hall with state of the art facilities to be built adjacent to the Town hall with a seating capacity of at least 7,000 to further encourage MICE tourism.

– Grant a 50% tax holiday for 5 years for companies incorporated specifically to engage in “MICE” activities.

– Allocate LKR500 mn to transform and upgrade the cultural triangle sites, Eastern province beaches, Nuwara Eliya, Badulla and upcountry sites as well as to develop 4 tourist zones.

– Galle to be developed as a heritage city.

– Construct an exhibition center near the parliament through a Public Private Partnership (PPP) to uplift MICE tourism.

– State owned land and half tax holidays for ten years to be provided for the establishment of theme parks to expand leisure activities and tourism.

– All hotels to be mandatorily registered under the Tourism Development Authority by 1 June 2016.

– Remove import duties on the caravan carriages, yachts, surfing equipment, speed boats and mini cruise boats.

Construction

– Construction companies who seek overseas markets to be granted the opportunity to continue with the tax exemption on the income generated outside Sri Lanka.

– Foreign contractor entering Sri Lanka to enter into a joint venture agreement with a local contractor.

– Remove the Construction Industry Guarantee Fund Levy.

– Introduce a Payment Guarantee Security Act to assure payment recovery.

– Import cost of building materials to be considered as a double deduction, for tax purpose.

– Steel, tiles and sanitary ware, import related duties to be revised downwards whilst removing them from the negative list of the BOI.

– The import duties on cranes and concrete mixers to be removed.

– Age limit applicable for imports of heavy equipment machinery to be extended to 10 years from the present 7 years.

– Increase the mobilization advance granted to small and medium scale contractors for government contracts of a value of less than LKR50 mn to 30%.

– Allocate LKR500 mn to introduce a PPP program for practical training in construction industry.

Healthcare

– Establish 1,000 kidney dialysis centres in CKDU prevalent areas at a cost of LKR6,500 mn.

– Allocate LKR 2 bn to construct a hospital specialized in kidney disease management in Minneriya.

– Allocate LKR 3 bn for construction of 3 cancer hospitals in Nallur, Kandy and Matara.

– Allocate LKR 3 bn to upgrade the Anuradhapura, Kurunegala and Jaffna Hospitals with the state of the art buildings, equipment and other facilities.

– Development of mobile hospitals with an allocation of LKR200 mn.

– Allocate LKR250 mn to train specialist doctors to overcome the challenge of non-communicable diseases.

– Basic accommodation requirements of doctors and other medical staff in rural areas to be fulfilled within a period of 2 years.

– Allocate LKR5 bn to build and equip 10 district-based stroke centres attached to tertiary care hospitals within the next 2 years.

– Allocate LKR250 mn to the National Science Foundation (NSF) to assist research in Diabetes, Dengue, CKDU and Cancer.

– Allocate LKR1.5 bn to refurbish Sri Jayewardenepura Hospital.

– Allocate LKR2.5 bn to improve Nursing School affiliated to the Sri Jayewardenepura Hospital.

– Establishment of an oversight unit in every hospital.

– Encourage private sector to establish pharmaceutical zones.

Agriculture, Dairy and Fisheries

Agriculture

– Reduction of 50% of the tax payable on the profits from locally developed seeds and planting materials for a period of 5 years.

– Reduction of 50% of the tax payable on the profits from agriculture using drip irrigation method, greenhouse technology and high yielding seeds for a period of 5 years.

– To set up 3 more warehouses (Polonnaruwa, Kilinochchi and Ratnapura) with state of the art technology with an allocation of LKR1.0 bn and the receipts issued by the warehouse to be used to receive a 50% of the value from the banks.

– A guaranteed price of LKR50/kg for Keeri Samba, LKR41/kg for Samba and LKR38/Kg for Nadu and other varieties. Average price of 1kg rice to hover around at LKR 65/kg.

– Provide the existing fertilizer subsidy scheme to small scale paddy farmers.

– A cash grant of LKR25,000 covering the production year, Yala and Maha, will be provided to farmers for a maximum extent of 1 hectare.

– The cost of acquisition of any machinery used for canning fruits and vegetables will be treated as a qualifying payment in addition to the depreciation allowance claimable on such machinery.

– Underutilized Government land to be leased out to fruit and vegetable farmers on request.

– Establish 5 cold rooms managed by private companies for vegetables and fruits within close proximity to economic centres. LKR2.0 bn has been allocated for this purpose.

– The custom duty on agriculture machinery and equipment, dairy industry machinery and equipment and fishing nets to be revised.

Dairy

– Encourage commercial scale dairy farming on a Public Private Partnership Arrangement (PPA), underutilized Government land to be provided for a minimum level of investment of LKR25 mn.

– Grant upfront depreciation on the machinery and a reduction of import taxes on machinery and equipment related to the dairy industry.

– Reduce the maximum retail price of a 400g domestically manufactured powdered milk packet to LKR295.0 from the existing price of LKR325.0. An amount of LKR1.0 bn has been allocated.

Fisheries

– Introduce a life insurance cover of LKR1.0 mn for the fishermen who meet with accidents at sea.

– Implement a buy back mechanism on canned fish through Lak Sathosa Ltd which would be sold at a concessional price of LKR125.0.

– Increase the Special Commodity Levy on the import of fish to LKR50.0.

– Import duty on fishing nets to be reduced.

– Develop and upgrade local fishery harbours with state of the art technology to include cold storages with an allocation of LKR750.0 mn.

– Establish agro and fish processing facilities in geographical locations close to the farm gates.

– Allocate LKR100 mn to National Aquaculture Development Authority (NAQDA) to undertake programmes to enhance fish breeding capacity.

– Set up an Aquaculture Park in Batticaloa District with an allocation of LKR100.0 mn and the park will be developed and managed as a PPP (Private Public Partnership).

– Provide capital and working capital requirements of the shrimp farmers, hatchery operators and processors through proposed ADB supported SME credit line.

– Provide guarantees through the SME credit guarantee fund to those who are engaged in shrimp farming.

– Introduce a deep sea fishing licensing scheme (one license holder engage in collaboration with at least 100 persons in the fishing community).

Consumer Goods

– The prices of 13 essential food items were reduced today through a reduction in the Special Commodity Levy (SCL) to provide consumers with a reasonable prices while protecting the local farmers.

Education

– LKR 1,000 mn – for all teachers to undergo continuous training.

– LKR 2,000 mn – to facilitate the deployment of teachers for regional and rural areas.

– LKR 4,000 mn – for providing proper sanitary facilities for Primary and Secondary schools by end of 2016.

– LKR 2,000 mn – to provide electricity to schools through the national grid or through solar power.

– LKR 10,000 mn – to upgrade 3,577 primary schools with the required facilities in the medium term.

– LKR 15,000 mn – to upgrade 1,000 secondary schools with activity rooms, laboratories, e-libraries and many more facilities.

– LKR 30,000 mn – to improve the quality and facilities of 1,360 neglected schools.

– LKR 250 mn – to upgrade 25 schools in the plantation sector to the secondary level.

– LKR 450 mn – for improving the science education in schools with no permanent laboratories.

– LKR 250 mn – to rehabilitate and upgrade the dental health facilities in schools.

– Exemption of import duties on printed books, magazines and journals.

– Unutilized land of schools to be used for cultivation, partnered by the private sector.

– Revenue generated through such cultivation to be used by the schools for funding their educational and infrastructure facilities (subject to obtaining approval from the Ministry of Education).

– All students to follow a compulsory educational process of 13 years, either in schools or vocational / training institutions.

– To restrict the number of children per classroom to 35.

– Each school to be regarded as a separate Cost Centre.

– A voucher system to be introduced for providing school uniforms.

 

Benchmarking Universities

– An increase in the total budgetary allocation by almost 30% for improving higher education.

– Faculties of Technology to be created by the universities for students passing the Advanced Level examination in the Technology stream.

– Hostel facilities and accommodation facilities to be provided for all students as well as academic staff by 2018.

– Providing necessary infrastructure for universities to introduce new courses in their curriculum.

– Local universities encouraged to seek accreditation with professional bodies to attract foreign students.

– LKR 3,000 mn – to establish the Mahapola University at Malabe providing new market oriented subjects.

– Establishment of an Engineering Faculty in Kilinochchi and an Agriculture Faculty in Vavuniya.

– LKR 500 mn – to provide the necessary infrastructure for the Post Graduate Institute of Pali and Buddhist Studies.

– LKR 300 mn – to provide laptops for university students on a 3 year interest free loan and wi-fi zones for all universities.

– Extra points to be given to students who invent a new product / service, created a start up or participated in international competitions when considered for university admission.

– Private universities to be monitored by the University Grants Commission (UGC) and at least 10% of the total placements to be awarded free of charge to local students.

– LKR 6,000 mn – to empower the universities for offering degree courses that suits the present day employment market requirements and facilities for the faculty of universities.

Vocational Training and Technical Education – Diversion for Opportunities

– Strengthening the vocational training strategy of the country to meet the needs of the private sector.

– Introduction of new degree courses by the Ocean University in areas such as Marine Biology.

– Establishment of five university colleges and one more at Batangala.

– Development of the university curriculum to include new courses such as Polymer Technology.

– Upgrading the Colleges of Technology to the status of University Colleges.

– Establishment of techno-based campuses and vocational training institutions in lagging regions.

– Introducing a voucher system to talented students from low-income categories to pursue higher education.

– To increase the intake of the Ceylon German Technical Training Institute (CGTTI) by 200 students within two years.

– Development of the Kilinochchi Vocational Training Centre as an Independent Training Institute.

– LKR 3,000 mn – for development of soft skills and English language courses.

Empowering Youth through the Youth Corp

– LKR 3,000 mn – to revive and strengthen the National Youth Corp by linking with the Sri Lanka Vocational Training Authority.

Revival of the Rural Economy

– LKR 21,000 mn with LKR 1.5 mn per village for rural reawakening programs.

– 14,022 Grama Niladari divisions to be developed into 2,500 cluster villages.

– Development of infrastructure and livelihood of the local community.

– Establishment of large scale agricultural enterprises.

– LKR 200 mn – to establish a new economic zone in Vavuniya.

– LKR 2,000 mn – to rehabilitate small tanks and canals to meet the irrigation needs of the rural economy.

National Environment Conservation Programme

– LKR 2,000 mn – for a 3 year program to protect the environment.

– Developing and conserving rain forests.

– Controlling environmental pollution and bio resource conservation.

– Additional programs relating to child protection, drug prevention and agriculture.

– LKR 4,000 mn – to be utilized within 3 years to protect wildlife and address the human vs elephant conflict.

Gold

– 50 licenses to be issued by the Central Bank allowing import of gold free of all import duties.

Primary Industries

– LKR 2,000 mn – to establish specialized agricultural and fishery export zones in the country.

Land

– LKR 500 mn – to introduce a “land bank”, an electronic database of state-owned lands.

Other Proposals

– Amendments introduced to expand the scope of the National Transport Commission (NTC) Act to include the regulations of three wheelers, taxis, school vans and cargo transportation vehicles.

– A concessionary loan of LKR150.0k for conversion of three wheel vehicles from fuel to electricity. LKR50.0 mn will be allocated for this purpose.

– Allocate LKR500.0 mn to install traffic encorders in order to help better management of traffic, deter theft and improve security.

– Establish a Railway Development Council comprising of five member appointed by the government to identify strategies to improve the yield of the underutilized assets.

– Propose CEB to partner with the private sector to harness Non-Conventional Renewable Energy projects to meet domestic requirements and to export the excess.

– Letters of Intent issued by the CEB for Non-Conventional Renewable Energy projects (NCRE) that has already been issued but unutilized for more than 1 year as at 31. December, 2015 will cease to be operational.

– Allocate a sum of LKR10,000 mn towards transforming Western province in to a Megapolis, which would be implemented on Public Private Partnership basis and is scheduled to be completed in 2016.

– Allocate LKR2,500 mn to the ministry of City Planning and Water Supply to improve access to clean water, provision of sewerage and urban development.

– Allocation of LKR1,000 mn towards developing seaport and airport logistic support services, agro based industries, agriculture support services improvement, urban facility improvement in the Southern Development.

– Allocate LKR2,500 mn for the implementation of drinking water projects, improvement of irrigation facilities and fisheries development etc. in the Wayamba Province.

– LKR2,000 mn will be allocated for Kidney Treatment Hospital in Minneriya and development of Polonnaruwa district whilst a further sum of LKR10,000 mn will be allocated towards this project.

– Government has allocated a significant amount of funds for the development of war affected areas whilst a Donor Conference will be conducted in 2016 to generate support from bilateral and multilateral agencies to enhance the rehabilitation of the North and the East.

– Allocate LKR1,500 mn for local government authorities to be utilized for the upgrading of infrastructure facilities.

– Allocate LKR150.0 mn to the recently instituted Ministry of Special Assignments.

– Allocate a sum of LKR3,375 mn for parliamentarians to actively involved in the governance mechanism.

– Allocate LKR15.0 mn as the government’s contribution to encourage the Association of Artists to initiate a mechanism for a contributory pension scheme.

– Allocate LKR1,000 mn for the development of sports whilst removing import taxes applicable on sports goods.

– Increase the agent fee per worker collected by the Sri Lanka Foreign Employment Bureau to LKR15.0k per worker.

Housing

– Provide 100,000 units of housing through private public partnerships (PPP) within a period of 5 years.

– Government will provide middle level government and private sector employees with 150,000 housing units. These houses will be constructed on state-owned lands in Colombo, Jaffna, Kandy, Matara, Batticaloa, Puttlam and Kurunegala.

– Allocate LKR4,500 mn to uplift the living standards of the rural community. The government will share the cost with the occupant with the government contribution being a maximum of Rs.300.0k per house.

– Legislative enactments will be brought about so that all permit holders of land and houses with occupancy of over 10 years, under the Land Development Ordinance, including the Swarnabhoomi and Udagama, will be given ownership.

– Existing laws relating to rent and ceiling on housing property will be reviewed to suit the present day context.

– It is proposed to allow foreigners to borrow 40 percent of their investment in condominiums from banks in local currency.

REVENUE TARGETS TO INCREASE BY 38.4%YOY IN 2016

The proposed budget is expected to achieve a total revenue target growth of c.38% YoY to LKR2032 bn steered by a 23.4% YoY increase from revenue generated from taxes. Income tax which accounts for c.15% of total tax revenue is expected to fall by 6.4% YoY while taxes on goods and services (accounts for c.63% of total tax revenue) is expected to rise by c.26% YoY along with taxes on external trade (c.23% of total tax revenue) by c.44% YoY. The Government continues to focus on tax simplifications while strengthening tax compliance and administration in order to boost economic growth. Meanwhile strict measures were taken on tobacco, liquor and casinos through a surtax of 25% on income tax. Further present exemptions on NBT will be removed while the present rate broadened to 4%.

RECURRENT EXPENDITURE TO RISE 17% YoY in 2016

The government budgets an increase 17.0% YoY increase in recurrent expenditure to LKR1,928.0 bn in 2016. Further recurrent expenditure as a % of GDP is expected to incline from 14.6% to 15.4%. State sector salaries and wages constitute circa 34% of the recurrent expenditure, where it is budgeted to grow by 6.9% YoY in 2016.

A notable portion of 26.9% of the budgeted recurrent expenditure for 2016 is allocated to pay interest. Moreover it is noteworthy that the interest expenses are to rise marginally (5.7% YoY in 2016 against 12.8% YoY in 2015) to LKR520.0 bn. This we deem as a result of the prudent debt restructuring measures carried out by the government, through paying off high cost foreign borrowings and resorting to domestic financing modes.

Expenses on subsidies and transfers are increased by 15.6% YoY to LKR437.0 bn, where government has allocated funds to interested farmers to produce quality seeds and plants under an approved trade mark and various poverty reduction programs. Existing fertilizer subsidy given to small scale paddy farmers to continue whilst a cash grant of LKR25,000.0 covering the production year (Yala and Maha harvest seasons) would be provided to farmers for a maximum extent of 1 hectare.

STATE INFRASTRUCTURE EXPENDITURE TO INCREASE BY 57% YoY IN 2016

Government has increased the allocation of funds for public investments to 31% from 24% in 2015 which amounts to circa 6.9% of the GDP. The capital spending on Education and Health is budgeted to increase by one fold in 2016. The government is keen on uplifting the standards of the education system (mainly the primary and secondary education) in the country where it currently spends around LKR98 bn (c.1% of GDP) and hence plans to further invest to develop the sector. The government has also taken steps to empower the universities for offering degree courses that suits the present day employment market requirements.

Meanwhile government has allocated 75% of the expenses on Public Investments to other infrastructure development including Ports, Aviation, Water Irrigation, Railways & Transportation and Rural development.

BUDGET DEFICIT CURBED TO 5.9% OF GDP

The budget deficit has been brought down by c.10 bps YoY to 5.9% (as a % of GDP) for 2016E cf. 6.0% in 2015. The marginal dip is on the back of increased recurrent expenditure while broadening the tax base through a simplified tax structure.

c.75% of the deficit is expected to be financed through domestic borrowings while c.25% through foreign borrowings. Meanwhile foreign borrowings (gross) are expected to increase by c.15% YoY to LKR519.0 mn while domestic increases by c.7% YoY.

Courtesy: Softlogic Stockbrokers (Pvt) Ltd

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