The National Chamber of Exporters of Sri Lanka (NCE), the private sector Chamber which exclusively serves exporters last week issued a statement raising seven key concerns facing the export sector and explained their impact on the cost of doing business. Following is a brief on each of the concerns raised by the NCE, which has a membership of over 450 export-oriented member companies covering all products and most services sectors, as well as service providers to exporters.
• Policy inconsistency
Ad hoc policy change announcements from time to time without consulting the relevant stakeholders, creates confusion and uncertainty. It also impacts the confidence of entrepreneurs and investors to engage in business. The recent changes in regard to direct and indirect taxes is a case in point. While the Prime Minister announced in the earlier medium-term economic policy statement that the ratio of direct taxes and indirect taxes will be improved to 60:40,what was subsequently implemented by the Finance Ministry is the reverse, which further increases the proportion of indirect taxes due to change in the VAT rate. Government intervention in private sector wages is another example. At present there is no clear- cut trade policy, taxation policy and wage policy.
• Corporate Tax
The Budget proposals for 2016 increased the Corporate Tax of Export Ventures from 12% to 17.5%. Additionally the recent increase of VAT from 12% to 15% is considered to affect the cost of certain inputs although export enterprises are zero rated in regard to VAT.
• Repatriating export proceeds
Although the recent announcement regarding the requirement to repatriate export proceeds within 90 days by all enterprises including BOI Companies ensures a level playing field, some exporters have expressed concern regarding the sudden announcement, without prior consultation since they have entered into contractual arrangements with buyers to provide credit facilities beyond 90 days in order to be competitive in their transactions vis a vis their competitors. At a recent discussion the Minister of Finance has had with members of the Council of the Chamber it has been stated that exporters could obtain a SLECIC Insurance for any extended period beyond 90 days, and use it as a guarantee to obtain Central Bank approval. However, it is understood that SLECIC is not in the position to guarantee payments of buyers in regard to extended terms although it is in a position to issue cover for non-payment of buyers under contract following proper assessment of such buyers.
• Govt. intervention in private sector wages
Legislation that has been enacted based on the budget proposals for 2016 requires Private Sector Employers to pay an additional Rs. 2,500/- per mensum to each employee. The sudden intervention by the State has created uncertainty among private sector employers who request prior consultation in regard to issues of this nature to avoid uncertainty related to the viability of business, and their performance.
• Hike in annual licene fee
According to a circular issued by the Department of Registrar of Companies implementing a budget proposal for 2016, private companies are required to pay Rs. 60,000 per annum as a registration levy while public quoted companies are required to pay Rs. 500,000 per annum and other companies Rs. 100,000 per annum. Concerns have been expressed that the imposition of such high fees would dampen company formation especially by SME entrepreneurs at a time when the government desires to boost the creation of enterprises for economic development.
• Exorbitant rise in port entry charges
The Sri Lanka Ports Authority (SLPA) has increased the Port Entry charges for Light and heavy vehicles ranging from 1,667% to 2833% from the current level. Additionally, entry permit charges for people has been increased, whereas in other countries with stronger economies such as Singapore, and even India, impose nominal charges to facilitate business. As such, sudden exorbitant increases of this nature need to be reconsidered since export enterprises in particular and business in general engage in transaction with the Port almost on a daily basis, these increases will have an adverse bearing on their operational expenses .
• Energy costs
In spite of the substantial decrees of oil prices in the International Marketplace, the price of fuel remains relatively high compared to the prices that prevail in competitor countries. Since the cost of fuel has a direct bearing on the cost of generation of electricity as well, there is an overall negative impact on the competitiveness of export enterprises. In this context a suitable formula which would link the sale prices of local fuel to the prices which prevail in the International marketplace to ensure predictability of cost of energy is recommended.