Budget 2011 speech delivered by President Mahinda Rajapaksa in his capacity as Finance and Planning Minister in Parliament yesterday:
As you chair the proceedings of this august assembly, the image of my father late D A Rajapaksa who occupied your seat once as the Deputy Speaker comes into my mind. I recall him crossing over to the opposition with late S W R D Bandaranaike and several others to give a leadership to transform Sri Lanka to be a truly independent and prosperous country in Asia. It was a transformation based on our national heritage, culture, value system and our own identity. That mission was not accomplished.
Having ended the 26 year old conflict and implemented a major country-wide development program since 2006, I sought a fresh mandate from the people prior to ending the first term of my office. I presented Mahinda Chintana – Vision for the Future at the 2010 Presidential Election. When introducing it to the people, I reminded that in my first term of office I won them the peace that they were yearning for. I also assured my deepest commitment to fulfill their future aspirations. I was elected with a majority of 1.84 million votes. This was a stronger mandate than the majority of 180,786 votes that I received at the 2005 Presidential Election. At the subsequent Parliamentary Elections, the United People Freedom Alliance led by me won 144 seats out of the 225 member Parliament. Today the Government commands a 2/3 majority in this Parliament.
People have placed their confidence in us to lead our beloved motherland to a brighter future. They want a decent living, a clean environment and a better life for their children. I remain firmly committed to give an uncompromising leadership to fulfill their aspirations. It is with that commitment I rise here today to present the 2011 Budget. I am also humbly proud as the Finance and Planning Minister for being able to reduce poverty to 7.6 percent during last five years while taking our country forward as an emerging economy in Asia.
At the time I took office as President, there was no stability in the country. I did not have even a majority in Parliament. Challenges were many. The country was in the midst of a prolonged conflict and on the verge of being divided.
The country was overshadowed by separatism, terrorism, communalism and external interferences. The popular view was that the LTTE was an unbeatable force.
Even confronting the LTTE was considered a grave mistake. The country had been shattered by the 2004 tsunami. Our environment had been destroyed over many years.
Forest cover had been reduced. Above all, I inherited a large budget deficit that had prevailed even much longer than the LTTE terrorism. There was no fiscal space. Funds required even to protect the sovereign state from terrorists were not available. Neo-liberal policies had taken deep roots.
Hence home grown solutions, local competencies and capabilities were considered inferior. The sale of state assets, pruning capital spending and subsidies to the poor, granting lucrative tax amenities etc. were regular policy prescriptions. The outcome was, the country being without a clear direction.
This legacy is now history. The war has ended and the country is unified. No room can be left for separatism and terrorism again. We have entered in to a new phase to emerge as a strong middle income economy by 2016 while rebuilding damaged areas as rapidly as possible. We all know that the brave men and women in our security forces, paved way for this journey forward. Many of our soldiers lost their lives. Some were injured and disabled. It is our duty to look after their long-term welfare. Therefore I propose at the very outset to allocate Rs 3,000 million over a period of three years to address economic difficulties of service men and women who have suffered as well as their families. I also propose to grant an allowance of Rs. 100,000 per family for a live birth of a third child of families of armed force personnel, to promote their family environment.
Unlike past Governments, we did not forget the economy while fighting the war.
With the victory in 2006 we immediately embarked on a massive infrastructure development drive. We have created adequate capacity in power generation and port services. The entire nation must have access to electricity and global trade. We expanded public investments in building roads and bridges islandwide. The construction of Moragahakanda, Uma Oya and Deduru Oya irrigation schemes together with the rehabilitation of 32 major irrigation systems and reservoirs have been undertaken. Government expenditure has also been diverted to expand the availability of drinking water at both national and community level to ensure that people will have access to quality drinking water. Investments in education and health to modernize school facilities and universities as well as hospital facilities have also been our priority. All of us now witness the massive development activities taking place in our country.
Empowering the village is our central theme in development. In this endeavour we focus on rural development initiatives to ensure that people in every village will have access to electricity, a road network, drinking water, telecommunication facilities, market places and townships. Above all they must have food and energy security and a green environment to live in. Gama Neguma program has completed 72,105 small projects at a cost of Rs. Rs. 27,888 million during 2006-2010. These projects have benefited 11.9 million people up to now.
The rural centric initiatives have enabled community participation in a big way.
Credible expectations have therefore been created that every single village will be developed through Gama Neguma. No village in Sri Lanka will be left out of this massive development drive during the next three years. We implemented Mathata Thitha a special initiative to liberate our people from the use of illicit liquor and narcotics. Smoking has declined by 18 percent over the last four years. A survey conducted by the Colombo University, reveals that the consumption of illicit liquor is also on the decline.
I undertook a Pre Budget Review of all 25 districts and provincial level work. I wish to share some evidence of progress. Sri Lanka’s poverty which was 15.2 percent in 2006 has declined to 7.6 percent in 2010. Most important development is that poverty in rural areas has declined from 15.7 percent to 7.6 percent while in the estate areas, it has declined from 32 percent to 9.2 percent. We will direct our strategies to reduce poverty below five percent within the next five years.
Let me show you how this progress has been achieved. Access to electricity in the rural sector has increased from 78.5 percent in 2006 to 83.2 percent in 2009, while it has raised from 62.3 percent to 84 percent in the estate sector. Access to safe drinking water has increased from 84 percent to 87 percent countrywide, while in the estate sector, it has increased from 46 percent to 65 percent. In 2006, only 98 percent of the children in urban and rural areas attended school. It has increased to almost 100 percent in 2009. Estates sector school attendance has increased from 92 percent in 2006 to 97.4 percent in 2009. Let me assure this Parliament that we will place Sri Lanka as the leading nation in achieving the Millennium Development Goals.
All island unemployment which was 7.2 percent in 2005 has dropped to 5.8 percent by 2009. In addition, earnings of our farmers and the labour force have increased. In 2005, farmers could not secure even Rs10 for a kilo of paddy they produced. We managed to maintain it in the range of Rs 24-28 per kilo. Higher producer prices also prevail for several other crops such as maize, onion, potatoes, and soya beans. We give fertilizer at Rs 350 per 50 kg bag to paddy farmers. Dairy farmers who were receiving Rs 18 per liter of fresh milk now receive Rs 44 per litre. Tea, rubber and spice growers have been able to attract remunerative prices.
Daily wages of our working people in agriculture, industry and services have also increased by 100 percent between 2005 and 2009. So, our economic program has given them widespread benefits regardless of whether they live in the urban, rural or estate areas.
Even in the liberated areas, the progress we have achieved since the date of liberation is remarkable. The Government has been able to resettle 263,000 people. Only 15,000 people remain to be resettled. A vast area of farm lands, public places, and residential areas have been demined. Provision of electricity, irrigation facilities, construction of roads and bridges, restoration of schools, health facilities and other public places have turned the Northern and the Eastern provinces to normalcy. The economic connectivity established through these initiatives also aims at connecting hearts and minds of our multi ethnic and multi cultural society. The Government has implemented a US $ two billion reconstruction program in the North.
These major reconstruction activities are expected to be completed by 2012.
Due credit must be given to our public servants and security forces who spearheaded such peace and development initiatives. I believe that the public sector has a special role to play. As we all know, there was a period within which the public sector was marginalized. During the last five years our Government reversed this trend. Public servants have been increased to 1.3 million. Wage increases have been given to all categories of employees and many of their grievances have been resolved. They are also given a cost-of-living allowance and housing and other loans at subsidized interest rates. In 2006 I introduced a contributory medical scheme to provide relief to public servants. I propose to extend these insurance benefits to pensioners. Therefore, I propose the National Insurance Trust Fund to upgrade and maintain selected wards in national and district hospitals, dedicated for public servants and pensioners. Such hospitals can recover the expenses of medicine and surgeries under this scheme.
National Insurance Trust Fund will allocate Rs 1,000 million to upgrade and maintain such facilities in key hospitals. I expect this proposal to provide considerable relief to nearly 450,000 pensioners and 1.3 million public servants.
The way forward
Our economy took over 25 years from 1977 to 2004 to increase the per capita income from US $ 300 to US $ 1,000. But we took only five years to double the per capita income despite several adversities. The per capita income this year is expected to be around US $ 2,375 in comparison to US $ 1,000, five years ago. While consolidating as a middle income country within the overall Mahinda Chintana Policy Framework, we have been able to correct several ill conceived economic ideologies and strategies to make development an inclusive and a beneficial process to the ordinary people. We have been able to bring back several assets such as Telecom, SriLankan, Insurance and Gas to public ownership for the greater benefit of the people.
Having ended the war, and with vital infrastructure in place, we are now in a better position to engage in an accelerated development process within the next six years.
Liberation of the Eastern and the Northern districts from terrorists has enabled us to use massive areas of land and sea for development. Our country has now become a safe and preferred destination for tourism. Our country is ranked first in the world in the health and survival indicators, sixth in the political empowerment indicators and among the top 20 in the world in gender equality indicators as well as a location attractive for outsourcing. Our performance in education and health is above average.
These are added strengths and potentials that must be fully exploited to ensure that the 26 year suffering will never be repeated in this land. What we now need is to devolve development rapidly to the provinces and our villages equitably. That is also the thrust of a political solution. The global economy is slowly recovering with a growth rate of around five percent. More encouragingly India, China, and all other major countries in Asia are providing a major impetus for regional and global growth that is beneficial for us. This is why in Mahinda Chintana – Vision for the Future we projected Sri Lanka as a dynamic global hub. Taking advantage of Sri Lanka’s strategic location, our next massive leap forward is to develop our motherland as a naval, aviation, commercial, energy and knowledge hub being a key link between the east and the west.
‘Mahinda Chintana – Vision for the Future’ targets a per capita income in excess of US $ 4,000 by 2016. A high per capita economy will help us to regain many opportunities we have lost during the last 26 years. This will provide a better life for the present and future generations. We have targeted to increase private investments from both foreign and domestic sources from the present level of 19-21 percent of GDP to a range of 26-28 percent over the next six years. This together with public investment of around 6-7 percent, our total investment can be raised from around 25-27 percent to 32-35 percent of GDP, to support the targeted economic growth in excess of eight percent in the medium term and 10 percent thereafter.
The tax structure for a value added economy
In support of this overall vision, I intend to revamp our entire taxation strategy. The findings of the Presidential Commission of Taxation provided some valuable ideas. We all agree that our tax system is complex, tax rates are too high and taxation is narrowly based. I propose to make some drastic changes. Let me focus on the import and export of goods and services which was about US $ 21 billion or about 50 percent of GDP in 2009. The export-import economy is strategic for our growth. A remarkable progress has been achieved in diversifying export products and their markets. However, most exports of tea, garments, leather, rubber, gem and jewellery products, several valuable spices as well as many raw materials are without sufficient value addition. Our manufactured products can be promoted through branding and better marketing efforts. The export potential of value added, branded exports has been estimated in excess of US $ five billion over the medium term. We still rely heavily on the importation of pharmaceuticals, wheat flour, food grains and energy sources. Space for import substitution in these areas is well in excess of US $ two billion.
Our production drive in this decade should aim at expanding exports and replacing imports. Our international trade strategy must aim at phasing out the trade deficit.
Therefore, we need to be more productive and competitive in export and import activities. In this context, I propose the following. First, I propose to impose a CESS on all exports in raw and semi processed form to encourage value added exports from Sri Lanka. Exports of finished goods will only be free from such CESS. Second, I propose to reduce duties and taxes on machinery, equipment and raw material to enable our enterprises to have affordable access to world class technology. Third, I propose to lower income tax from 15 percent to 10 percent for industries with domestic value addition in excess of 65 percent and Sri Lankan brand names with patent rights reserved in Sri Lanka.
Fourth, income tax of all export companies will be reduced from 15 percent to 12 percent to encourage general exports. Fifth, to promote domestic manufacturing enterprises to increase their production, I propose to reduce income tax on profits from 35 percent to 28 percent. I hope these drastic reductions of taxes will promote our export- import economy to increase its contribution from 50 percent to 60 percent during this decade.
Sri Lanka has immense prospects in generating income and employment from tourism. Tourism should be a billion dollar business. Although tourist arrivals have picked up and expected to be around 600,000 this year, earnings from tourism shows only a moderate increase. This is largely because the industry as a whole is underpriced. Therefore, I propose to impose a levy of US $ 20 per bed on all five star hotels which charge a room rate that is less than US $ 125 per night from January 2011 to compel all hotels to charge better rates.
We must get ready to facilitate 2.5 million high spending tourists by 2016. Tourists must see our richness and diversity. Over the next few years the capacity of this industry need to be tripled from the current level of around 15,000 rooms. Since our country is emerging as a middle income country, local tourism itself is expected to increase significantly. In this investment drive we must link with domestic construction companies and architects and other professionals.
I also propose to refurbish all rest houses and Government circuit bungalows in support of local tourism. The tourist industry must use our local agriculture and industries in its expansion strategy for greater benefits to the local economy. Therefore, I propose to reduce tax on income earnings from tourism and related business from 15 percent to 12 percent. I also propose to reduce duties and taxes on passenger transportation vehicles by 25 percent. I propose to exempt the importation of electric and highbred vehicles from Excise Tax and VAT in order to promote environmental friendly tourism.
Custom duties and VAT on various machinery and equipment which are not available here will also be reduced to facilitate refurbishment and expansion.
I have already reduced excessive taxes on branded consumer durable to popularize domestic shopping for tourists and local consumers.
We must make our banking and financial institutions to make a greater contribution to our development efforts. We will continue to engage in our efforts to maintain low interest rates. We will promote our people to get closer to banking and financial institutions.
Therefore, I propose to abolish the bank debit tax so that withdrawals from banks will not be liable for any tax. I also propose to reduce VAT on financial services from 20 percent to 12 percent.
Further, I propose to reduce tax on profits of banking and financial institutions, from 35 percent to 28 percent. This will apply uniformly to all off-shore and domestic banks as well as to finance companies, leasing, insurance and other specialized banking and financial services.
I also propose that all banking and financial institutions will be required to register separate Investment Fund Accounts with the Central Bank to transfer all tax savings arising from these proposals.
The Central Bank and the Department of Inland Revenue will issue specific Regulations requiring banks to adopt low interest rates and longer term maturity for lending these funds since tax savings must be used more productively in our economy.
I also propose to appoint a Presidential Commission on Banking and Financial Services to examine the changes required to develop the sectors further in the context of emerging economy status and towards transforming Sri Lanka as a regional financial hub.
In order to increase the market capitalization from Rs two trillion to Rs three Trillion, we need to encourage listing of new companies and debt instruments.
Therefore, I propose to recognize expenditure in relation to such activities as a deductible expenditure for tax purposes subject to a 1 percent of the value of the IPO. As there is no capital gains tax in our country, I propose to increase the Share Transaction Levy from 0.2 percent to 0.3 percent. Withholding tax on corporate debt securities will be treated on par with government securities.
I also propose to exempt re-insurance commissions and claims from VAT to reduce the transaction cost of insurance. In order to promote unit trusts to mobilize savings, I propose to exempt them from the Economic Service Charge.
Exchange control restrictions on foreigners and foreign funds investing in unit trusts will also be exempted. I also propose to exempt income derived by unit trusts from investments in listed debentures and equity, from income tax.
Sri Lanka is fast emerging as a niche global destination attracting outsourcing of IT and BPO services. It has become the fifth largest exporter. At present, the country is ranked seventh among the 50 best emerging global cities that attract outsourcing. More and more e-governance applications are now in the pipeline to serve people and businesses.
The Government has launched various programs to increase ICT literacy to 75 percent by 2016.
A widespread tele-centre network consisting of Nanasalas, Vidhatha centres and school PC labs, has been established. Universities and vocational training institutions have been geared towards popularizing ICT education. I propose to establish a knowledge city in each province linked to university townships. I also propose to intensify the tax incentives already available for IT/BPO businesses. I further propose to remove VAT and Nation Building Tax on software. Our aim is to make this industry a US$ 2 billion export activity by 2016.
The Telecommunications industry is the backbone of modern economies. The tax applicable to this sector is complex. Therefore, I propose to combine all such taxes and impose a Telecommunications Levy of 20 percent. In place of licence fees and CESS imposed by the Telecommunication Regulatory Commission, I propose a two percent licence fee on gross revenue. As the industry depends heavily on high-tech equipment and machinery, I also propose to exempt those items from duties and VAT at the point of Customs. I propose a levy of Rs 2 per minute for outgoing International calls. I also propose to reduce the minimum floor rate for local calls from Rs 2 per minute to Rs 1.50 per minute from July 2011 for the benefit of consumers. I have requested the Telecommunication Regulatory Commission to regulate the broadband costs in order to increase broadband penetration.
Various incentives introduced during last five years to promote the gem and jewellery industry have worked effectively. Its foreign exchange earnings have increased to about US $ 400 million from US $ 200 million in 2005. This industry has the potential to double its foreign exchange earnings by 2015. Therefore, as a further incentive, I propose to increase the foreign exchange allowances granted to import raw gem stone from US $ 10,000 to US $ 50,000 per person. A simplified procedure will be introduced jointly by the Customs, Exchange Control and Export and Import Control Departments to facilitate importation of gems to the country for processing and value addition. I also propose to remove all taxes on raw gem stones at the point of import.
The Geological and Mines Bureau will undertake a national survey to assess country’s gemming resources and to work out a long term strategy relating to gem mining in Sri Lanka.
Sri Lanka’s export industry is often hampered by anti competitive practices of shipping lines. As a result, Sri Lankan exporters are often subject to various charges imposed by shipping lines. Most of these collections from FOB exporters are not legally backed by international shipping rules. These charges not only result in anti competitive practices but also cause a serious drain of foreign exchange and tax evasions.
These charges are also imposed on imports.
Consequently Sri Lanka’s trade oriented SME centric economy is in a disadvantage position.
Therefore, I propose to introduce new legislation within first 100 days of 2011, towards countering anti competitive practices in shipping and trade.
Sri Lanka’s Apparel industry continues to manufacture world renowned quality apparels for global brands. It has always adhered to ethical practices and environment standards. The industry has a huge potential to become a US $ 5 billion industry. Towards this, further facilities will be arranged to promote entrepot trade involving imports, processing and re-exports as well as transshipment business in apparel clothing. Incentives have been given to promote textile, apparel and leather product related high value added activities.
As such, machinery and equipment to manufacture textile, leather, footwear and bags will be exempted from import duties and VAT.
The Government also plans to attract leading buyers to establish their headquarters in Sri Lanka for management, finance, supply chain and billing
operations. I also propose to exempt foreign exchange earnings from such activities from income taxes. In order to promote these activities the exchange control requirements and Custom procedures will be simplified.
A Productive Economy
Our key goal in this decade of development is to improve our productivity by five to six percent per annum. This will require skills development, enterprise restructuring, improved access to financing, simplified taxation and access to technology.
Therefore, I propose several measures. First, the Government will commit its own resources through the Ministry of Youth Affairs and Skills Development to train 300,000 youths in a wide range of new skills. Out of a three year commitment of Rs 16 billion, an allocation of Rs 5 billion is provided in this Budgetfor investment in skills development. Second, all SMEs and underperforming business activities, will be assisted to restructure to optimize their businesses.
The Government has mobilized Rs 5,000 million from the World Bank for this. Third, I propose to write off unpaid tax liabilities up to March 2009 of all enterprises with a turnover below Rs 100 million since our SMEs have functioned under high interest rates and a very unfavourable conflict environment during the past 26 years. Fourth, as most SMEs operate on sub contracting arrangements, I propose to exempt them from the Economic Service Charge from January 1, 2011. Fifth, I propose to offer a concessionary income tax rate of 10 percent for SMEs.
Domestic economy particularly the SME sector can get a meaningful stimulus from Government programs such as Thriposha, surgical gauze, selected pharmaceutical products, school text books, uniforms and furniture which are produced locally.
The Government procurement expenditure on account of these items exceeds Rs 10 billion annually.
Therefore, the relevant line ministries and Provincial Councils must promote local suppliers to ensure the timely availability of such products in the domestic economy.
In our effort to push the economy towards high value activities, our enterprises must re-engineer their work processes and invest in new skills and innovations. Towards this, I propose to encourage enterprises to undertake Research and Development, registration of patent, trademarks and designs, automation through technology and training of their work force. Such enterprises are encouraged to get assistance from universities, research and technology institutions and skills development agencies.
Therefore, I propose to give a 200 percent deduction of expenditure incurred on such activities to enterprises.
The productivity of our workforce is adversely weakened by alcoholism.
We must ensure that our society will not be a victim of crimes, drugs, illicit activities, money laundering, and financial frauds. Our academia, clergy, civil society and above all, teachers and parents must participate in family and community based activities to rescue our younger generation from this menace.
Therefore, I propose to allocate a sum of Rs 200 million to implement Mathata Thitha initiative aggressively in every single village and township as a national priority.
The Government will also use taxation measures and other regulatory arrangements to discourage the consumption of liquor and cigarettes. Therefore, excise tax on cigarettes and liquor has been already increased. I also propose to increase tax on profits of businesses engaged in the manufacture and distribution of liquor, cigarettes, and casinos from 35 percent to 40 percent.
Our national research and development expenditure by both the public and private sectors must increase to at least two percent of GDP during this decade. In this Budget, the total funds allocated to public sector research institutions for mission oriented researches, amount to about 0.5 percent of GDP. Further, the double deduction for a wide range of R&D and related expenditure is expected to raise private sector R&D expenditure also to 0.5 percent of GDP.
As the public sector commands a good resources pool and the private sector commands the capacity of commercial applications, I encourage partnerships between Government and private sector research centres and universities to undertake joint R&D initiatives for high productive economic activities. I propose to relax administrative procedures obstructing the two sectors to work together.
I also propose to allocate Rs 1,000 million to set up an Innovation and Technology Development Fund to finance high quality research and innovations.
Capital expenditure of Rs 54 billion is provided for education and health. This is in addition to Rs 152 billion of recurrent expenditure on these two services.
Therefore, the total expenditure on human resource development is in excess of Rs 200 billion. This reflects our commitment to position our motherland as a knowledge economy and a healthy society. The inequitable distribution of the school network has resulted in the closure of certain rural schools while creating overcrowded urban schools.
Therefore, I propose to develop 1,000 well equipped secondary schools throughout the island over a period of five years. Each secondary school will be linked to a number of primary schools. Required funding of Rs 15 billion has been mobilized from the World Bank and the Asian Development Bank. “English as a Life Skill” initiative that was commenced in 2009 will be formally expanded in 2011 by the Ministry of Education. For this, I propose an allocation of Rs 750 million in 2011.
I propose to launch a “Trilingual Sri Lanka” initiative in 2011 under a ten year action plan. This plan is designed to ensure the rights of every citizen to liaise with any Government institution in Sinhala, Tamil or English. It will evolve an integrated society with a skilled workforce that is capable of employment of any part of Sri Lanka. This plan will be implemented together with Ministries of National Languages and Social Integration, Education, Higher Education, Public Administration and Provincial Councils.
I propose to allocate Rs 100 million in 2011 to support programs under the relevant line Ministries for this “Trilingual Sri Lanka” initiative.
Our 17 universities are at various stages of development. While many of our State universities have acceptable facilities, the recently established universities need considerable investments to be upgraded. Therefore, I propose a three year development initiative with Rs 3,000 million from 2011 for all those State universities to project with a unique core identity for each university.
This accelerated development program will also aim at developing university townships with required facilities such as transportation, accommodation and recreation.
I also propose to grant a further Rs 600 million to transform Peradeniya, Moratuwa, Colombo, Sri Jayawardanapura, Kelaniya and Ruhuna universities to become world class universities in their chosen fields. I also propose to introduce a Presidential Awards System to our national universities to be assessed based on their academic and research performances.
Our university intake is only 22,000 out of about 50,000 eligible for higher education. That is also after the Government having spent about Rs 20 billion in higher education annually.
This is why we need more investments in higher education. Therefore, universities and higher education institutions must be regulated within a sound legal framework and under a strict supervisory mechanism. We cannot permit – ‘educational shops’ to operate under the guise of educational institutions and universities.
We need quality education. Our objective is to move away from profit orientation and maintain high standards for higher education. We all must guarantee that no one is left out when it comes to education. Let us not forget that education is the future of our children.
Demographic transitions with the increased share of elderly population and the surge in non communicable diseases have brought up new challenges to our health system. A three year action plan targeting the control of non communicable diseases will be implemented from 2011 through improvements in the primary healthcare system. I propose an additional allocation of Rs 900 million for this proposal. I propose to exempt the import of pharmaceutical products from Port and Airport Levy to reduce the cost of medicine.
I also propose to exempt high tech medical and laboratory equipment from import duties and VAT to promote investments in health services.
Port and Aviation Hub
We propose to transform Sri Lanka as a strategically important economic centre in the world. As our port sector is emerging with large international port facilities investment in industrial zones and port related services will be encouraged.
A port city development initiative in Magam Ruhunupura will be implemented under strategic investment. In the aviation sector, we encourage Maintenance, Repairs and Overhauling (MRO) businesses and cargo operations for joint ventures. A Graduates School of Aviation will be promoted to train pilots and other aviation professionals. Increased frequencies will be granted to international airlines to promote Sri Lanka as a popular destination.
New regulatory arrangements have placed us high in international regulatory standards. SriLankan Airline and Mihin Lanka will be expanded with new aircraft to increase the fleet to 30 by 2012. I propose to exempt SriLankan and Mihin Lanka from all taxes for a period of 10 years to strengthen the two enterprises.
We need to reformulate our strategies and the institutional mechanism to improve our investment climate.
In the past, all what successive Governments have done in this regard, is offering costly tax concessions, cheap labour and our valuable assets free of charge.
A skilled labour force, political stability, a low tax regime and efficient government institutions to facilitate investment must be the basis of our investment promotion strategy. Therefore, the Board of Investment (BOI) will be required to focus on three core activities. First, is to manage Export Processing Zones efficiently. Investment will be attracted to fill vacant positions in all 12 zones. Second, to concentrate on promoting quality investment from abroad. Such investment must add value to our economy. They must be environment friendly and socially responsible.
Large investment will be promoted under the strategic investment law and income tax laws. I propose to revise BOI Regulations to offer its incentives to carefully targeted priority sectors. Third, is to devote time for monitoring and follow-up.
Further, despite having been approved, since many BOI investments are non-performing, I propose to cancel forthwith, all BOI approvals granted before June 30, 2010, if such investment has not commenced or has remained closed as of today. Those who have not commenced work but wish to proceed must obtain fresh approvals. The BOI law will be amended to create a position for a Director General to ensure continuity in executive responsibilities.
The separation of the former Sri Lanka Tourist Board into four agencies has not served the intended purpose. I propose to merge all agencies except the Hotel School as a single agency capable of effectively promoting tourism. New legislation will be introduced to enable this in the first 100 days of 2011.
Approval procedure of Urban Development Authority with regard to housing and property development is very complex and time consuming.
The operation of multiple administrative systems by local authorities, provincial councils, line ministries and such other agencies have caused further complexities.
I propose to appoint a full time Cabinet Sub Committee to review all such administrative procedures and regulations and to simplify them within six months. I have also directed the Treasury to review all fees and levies being charged by various agencies and to simplify them within the first 100 days of 2011.
Information and Communication Technology Agency of Sri Lanka (ICTA) has initiated several electronic processing systems. Several departments have already adopted such systems. All Government agencies will adopt an electronic approval procedure in 2011.
The E-governance project will enable all regulatory agencies to link with each other to share information. The Financial Regulations have also been amended to authorize all Government agencies to accept credit cards, to pay for Government services.
The Department of Immigration and Emigration will use an electronic approval system to grant visas and monitor visa regulations.
Government has already initiated action to transform the Department of Customs and the Board of Investments to provide required facilities in trade documentation through an electronic data processing documentation procedure.
A three year Fiscal Efficiency Management Program has been undertaken to introduce a technology based tax administration within the next three years. Foreign offices maintained by the Foreign Employment Bureau, the Tea Board, Department of Commerce, and other agencies will be brought directly under the supervision of the Sri Lankan Embassies abroad so as to provide a one stop service.
Once officials are posted, they will be required to work under the direction and supervision of the respective Ambassador. All promotional activities will be undertaken only through this coordinated strategy.
The scope of the responsibilities of Ambassadors will expand beyond the traditional diplomatic functions to include responsibilities relating to investment, trade and economic affairs.
Foreign exchange controls and import and export control arrangements will be simplified to facilitate foreign exchange inflows to our country. This will facilitate to operate bank accounts abroad, payment of import bills, margin requirement for advance payments, forward contact arrangements etc.
The Central Bank of Sri Lanka will shortly issue new guidelines on foreign exchange transactions. The Central Bank will also publish a revised guide, showing further improvements in “Doing Business” in Sri Lanka in terms of my proposals, in the first 100 days of 2011.
A simple income tax system
Our development thrust over the next decade is to become the knowledge hub in the region. The promotion of knowledge based industries requires professionals. As I intend to mobilize our professionals and build a knowledge reserve in our country, I propose to create the region’s best personal income tax regime.
Therefore, I propose to reduce the current tax rates on personal income ranging from 5 to 35 percent to 4 to 24 percent. I propose to increase the tax free threshold income from Rs 300,000 to Rs 500,000 and the tax slabs from Rs 400,000 to Rs 500,000. I also propose to extend this to non-resident Sri Lankans. Our professionals need not worry about high taxes any more.
The wage earning middle income employees who are subject to PAYE tax needs a simpler system. Therefore, I propose to exempt any employee earning Rs 600,000 per year (Rs 50,000 per month) from PAYE tax. Applicable tax rates for employees earning over Rs 600,000 will be reduced subject to a maximum rate of 24 percent.
The new PAYE system will be a final tax at source. Employees will not be required to file returns unless they have other sources of income.
I also propose to apply the new PAYE system to the public sector as well. This will correct the longstanding discrimination between public and private sectors. I propose to increase the tax free threshold on interest income from Rs 300,000 to Rs 500,000. The applicable tax slab will also be increased to reduce the tax burden on those who live from interest income.
At present the Provident Fund income of employees are taxed three times. I consider this is not correct. Further certain employees and employers operate outside provident fund schemes to evade tax.
Therefore, I propose to exempt terminal benefits from Employees’ Provident Fund from income taxation.
Our working class is our biggest asset. They sacrificed a lot during the 26 year old conflict. They stood for a united Sri Lanka and helped to defeat terrorism. We have regular consultations with them.
Ever since I became the Minister of Labour in 1994, I tried to understand the prevailing dual treatment relating to pension rights. I think everybody must have an income after retirement. Therefore, I propose to set up an Employees’ Pension Fund to provide post retirement pension benefits to employees in the private and corporate sectors.
Towards this, I propose a two percent contribution from employees and a two percent contribution from employers to this fund. The employers will be required to transfer the entirety of the gratuity payment to this fund. Employees too will be required to transfer two percent of their Pension Fund balance at the time they withdraw the Pension Fund, in lieu of future pension benefits from the Employees’ Pension Fund. I also propose that everybody must contribute for a minimum 10 year period to earn a pension. The Employees’ Pension Fund will be managed by the Central Bank Monetary Board.
Nearly three million Sri Lankans are engaged in overseas employment. The remittance income to the country is expected to be nearly US $ 4 billion this year. However, there is no proper social security system for these people when they reach old age. Therefore, I propose to set up an Overseas Employees’ Pension Fund (OEPF). Each employee is required to contribute at least Rs 12,000 per annum to this fund. The contribution can be made in stages during the year. Each employee must contribute for a minimum period of two years. Pension will be paid after reaching the age of 65 years in the case of men and 60 years in the case of women. The Foreign Employment Bureau will transfer its unused funds to this pension fund. In appreciation of the valuable contribution made by such overseas employees, to improve country’s foreign exchange earnings, the Government will contribute Rs 1,000 million as an initial capital for this fund in 2011.
I promised to introduce a pension scheme for every citizen over 65 year of age. We need to prepare for a larger elderly population by 2020. A successful pension scheme can be worked out only by making it a contributory scheme. Therefore for the unorganized sector, I propose to set up a Citizens’ Pension and Insurance Fund (CPIF). I propose to merge all existing schemes under various agencies to this new Citizens’ Pension and Insurance Fund. Every one seeking membership would have to contribute a minimum of Rs 5,000 per year as and when they have money. Pension will be available after contributing for 10 years and after reaching 65 years of age. The Government will contribute Rs 1,000 million in 2011 to form this new fund. Nearly three million persons engaged in agriculture, fisheries, transport, construction, self employment etc. will be the target groups of this fund.
Common amenities and housing
In response to our invitation to the public to participate in the formation of this Budget, a number of people have expressed concerns over incomplete projects, unused public buildings, playgrounds etc. standing unattended by Government agencies. As rightly pointed out, we need to put them in to productive use. Therefore, all line agencies and Ministers must ensure that these concerns are addressed within the first 100 days of 2011. I propose to allocate Rs 1,000 million to attend to such neglected public assets for the benefit of the community.
We have committed to develop one million housing units during the next six years. Our first priority in this initiative is to ensure that all displaced people will have access to decent housing before the end of 2012. We are grateful for the assistance extended by the Indian Prime Minister to build 50,000 houses. The Government has also mobilized funding through donor agencies, friendly countries and its own budgetary resources to rehabilitate further 80,000 houses. Our next priority is to develop 70,000 housing facilities for shanty dwellers in urban areas. The Gama Neguma initiative, Jana Sevana initiative, provincial councils and other regional development initiatives will target building 80,000 housing units for low income rural and estate households each year, over the next six years. Public and private sector employees will be supported with expanded housing loan schemes.
There is also an urgent need to modernize housing facilities built over 40 years ago. 19,300 housing units providing shelter to about 75,000 people belong to 176 old housing schemes. As phase one, housing schemes such as Maligawatta, Serpentine etc. will be rehabilitated in 2011. I propose to allocate Rs 1,000 million for a three year rehabilitation initiative of these housing schemes requiring the relevant households to assume future responsibilities of maintenance of the respective housing units.
The National Housing Development Authority (NHDA) will provide planning and technical assistance for low income households to build and improve quality housing. State banking facilities and the internally generated income of NHDA will be utilized to promote low income housing. A Construction Technology Park will be established to popularize technical skills and low cost housing technology among peoples.
To further promote our construction industry, foreign contractors will be required to establish working partnerships with local construction companies. I propose to reduce income tax on the construction industry from 15 percent to 12 percent.
To maintain a proper data base and to ensure that every house is added to the system, an Information Secretariat will be established. I also propose to allocate Rs 500 million for the early completion of the already initiated housing schemes.
Our objective as a middle income country is not to build concrete structures all over. As such, the Government has planned its urban development strategy while ensuring the protection of public places, playgrounds, water reservoirs and green belts in townships. Certain Government premises will be relocated and old housing schemes will be redeveloped. To facilitate urban development initiatives, an Urban Development Fund will be established to meet relocation expenditure. Priority will be given to provide modern housing for shanty dwellers and payment hawkers within the same localities that they presently operate. In all urban development planning, dedicated common facilities will be reserved for three-wheeler and taxi parking and self-employment opportunities.
Plantation agriculture plays a strategic role in our economy. The export income from plantation industries can be doubled by improving cultivation, processing and promoting higher value added export products. To maintain tea production at 300 million kg per year, we need to expand the cultivation of tea. Therefore, to encourage replanting and new planting, I propose to increase the subsidy by Rs 50,000 per hectare to smallholder tea growers. I expect an extra 1,500 hectares of plantation annually under this program. A revolving fund facility will be arranged to provide related credit facilities. Re-plantation under plantation companies will be promoted through the proposed investment fund in the banking system. Since a large area of land under plantation companies remains unutilized, I propose to give a six months notice period for such companies to put unused lands in to productive use. If plantation companies do not comply with this deadline, such unutilized lands will be distributed among smallholders for re-plantation. The Tea Research Institute will promote technology and research to improve quality tea, propagate high yielding varieties and minimize post harvest losses. The tea sector must move forward with very high value added exports with Sri Lankan brands. Therefore, I propose to increase the export CESS on bulk tea to Rs 10 per kg.
In the Budget estimates, Rs 500 million has been provided to give subsidies for replanting, new planting, inter cropping and productivity improvements in the coconut sector. In addition, Rs 200 million has been provided to curtail the crop diseases spreading in the Weligama area. Intermediate cropping and drip irrigation technology will be introduced for these areas to be able to adopt alternate crops. Coconut cultivation is also encouraged in the Northern and the Eastern provinces.
Our intention is to raise coconut production to 3,500 million nuts per year from the current level of 2,800 million, over the medium term. Lease agreements of unutilized lands given by the Land Reform Commission and the Mahaweli Development Authority will be terminated unless such lease holders put such lands in to development work before end of June 2011.
Thirty five percent of the raw rubber production is still exported as a primary commodity. As the world demand is shifting towards natural rubber, we plan to increase rubber production by almost 50 percent over the next 10 years. This requires new plantation and re-plantation. New plantation is promoted in Moneragala, Vavuniya and Mullative districts. I propose to increase the replantation and new plantation subsidy in support of this goal. In addition it is proposed to give a 50 percent subsidy to popularize the use of rain guards, to increase production from the existing plantations. Therefore, I propose to increase the budgetary allocation of the Rubber Department from Rs 500 million to 750 million.
I am of the view that our rubber based industry could be made a one billion dollar export earning industry, if we increase manufacturing rubber based products in this country. The annual cost of tyres and tubes in which is US $ 50 million could also be reduced, if local raw rubber could be channeled to industrial production. Therefore to encourage value added exports, I propose to increase the CESS on the export of raw rubber from Rs 4 per kg to Rs 8 per kg.
Agrarian economy and food security
Our country can reach self-sufficiency in many agricultural products. This requires an increase in the supply of high quality seeds and planting material. The research talents in the Agriculture Department and our universities must focus on high yielding, quality crops that are abundantly cultivable in Sri Lanka. The development of such crops will raise rural income and reduce the cost of imports by US $ 500 million.
Therefore, 19 seed farms and all unutilized lands in agricultural research centres such as Mahailluppallama belonging to the Agriculture Department must be developed as a national priority. I propose a three year accelerated seed farm development initiative from 2011 at a cost of Rs 700 million. The Department will work with the private sector seed farms to expand seed development programs.
As an incentive to the private sector, I propose to grant a five year tax exemption for investment in seed farming. The seed certification service of the Department Agriculture must also intensify its extension services to farmers who are keen to develop seed and planting materials. Fertilizer subsidy provides a big relief to paddy farmers. In order to increase its productivity, we encourage the use of organic fertilizer as well. Any irregularities occurring in the distribution and use of fertilizer will be curtailed and the subsidy scheme will be continued.
A wide range of spices and cocoa grown in Sri Lanka has a unique advantage in earning foreign exchange.
The unused land owned by the plantation companies will be required to enter into cocoa cultivation. I propose to implement a five year subsidy scheme for planting and replanting of spices. Financial assistance will be extended under the SME program for spice processing industrialists to promote value added products in this sector. The Department of Minor Export Agriculture will implement a special program to develop spice gardens and highbred planting material.
The “Gama Neguma” initiative will also promote infrastructure required to support livelihood activities, based on smallholder spice cultivation.
The global demand for flowers, ornamental plants and foliage is growing rapidly. This sector can be an attractive employment source for women and youth. In order to promote floriculture particularly in Awissawella, Gampaha and Kegalle areas, I propose to implement a special incentive package to establish nurseries to produce high quality flowers and ornamental plants.
This will be spearheaded by the Botanical Gardens Department which will provide free training on related cultivation, give advice on how to avoid post harvest losses, packaging and the scientific know-how. I propose to allocate Rs 100 million for this venture.
There are more than 25,000 minor irrigation schemes in our country. These are vital for agriculture, to preserve the environment and to meet animal and human needs. Therefore, I propose an allocation of Rs 900 million for a three year partnership initiative between the Provincial Councils and the Department of Agrarian Services to rehabilitate all minor irrigation schemes in our country.
Special focus will be given to rehabilitate all minor irrigation systems in the Western Province to be able to use over 50,000 hectares of abandoned lands.
We have ample opportunities to increase fish production. We propose to increase the fish production from the North and East, to get 50 percent of the total production. I propose to remove registration fees, renewal fees and operational charges on annual licences for fishery boats to give relief to smallholder fishery activities and simplify administration. I propose to grant credit facilities at a concessionary interest rate of eight percent to promote inland fishery and aquatic resources activities. I also propose to implement a long-term concessionary loan facility for deep sea fishing.
In order to promote the fisheries industry, I propose to exempt the fisheries industry from income tax for period of five years. The Tourism Development Authority will allocate Rs 300 million for the development of traditional fishery villages and improve fishery industry based tourism.
The livestock sector is critical in food security, income generation and foreign exchange savings. Towards improving this sector, the Ministry of Livestock and Rural Community Development will import high yielding dairy animals to supply breeding materials to dairy farmers. Investment by private sector will be encouraged to increase the availability of liquid milk.
I propose to increase the farm gate price for liquid milk to Rs 50 per litre. Special credit facilities at eight percent interest will be extended to promote small scale livestock activities.
The Department of Animal Production and Health will engage in veterinary research to provide quality services to farmers. Extension services will be expanded at each divisional secretariat with more veterinary surgeons and technical staff to promote livestock activities of small entrepreneurs.
Art, culture and mass media
The National Tele-Cinama Park at Ranmihithenna for the artist to develop their creations has now become a reality. We did this from the tax on the imported tele-drams shown in our TV channels. It also helped to encourage the local tele-drama industry.
As such revenue collection is inadequate to expand this facility further, I propose to allocate Rs 200 million from the budget to commence phase two of the project. I have noted that the tele-drama levy is not applicable to cable television services.
Therefore, I propose to extend this levy to cover all such television services as well, and use such funds for the benefit of our artists.
The 1970s was the golden era for our folk art, stage dramas and performing arts. Our internationally reputed artists enriched our art and culture.
Next year will be a landmark year for performing arts as we will open a world class Performing Arts Theatre in Colombo.
This celebrates the long standing China- Sri Lanka friendship which was sealed in 1952 when our two nations signed the rice-rubber pact. The Government of Korea is assisting us in the development of a new international convention centre at Magam Ruhunupura.
Promoting our un-separable ties, India is assisting us to develop a cultural centre in the North. Similar facilities will also be developed in Kandy, Trincomalee, Galle and other major townships. Therefore I propose to give a special priority for our performing arts. I propose to set up a Performing Arts Trust to manage all the new facilities.
The Trust will encourage our legendary artists and producers to revive performing arts. Therefore, I propose to allocate Rs 100 million as a seed capital for this initiative. Cash grants will be provided to artists towards promoting art and drama.
I also invite every single bank and financial institution to sponsor staging at least one award winning old drama during 2011 and 2012. I also propose to increase the allocation for the construction of a SAARC Cultural Centre by Rs 250 million to accelerate its implementation. Let us make this decade also a golden decade for the Sri Lankan artists.
I also propose to implement a ten year plan to conserve our archaeological sites throughout the country. To begin this, I propose to allocate Rs 300 million in 2011.
In the 2007 Budget I gave financial assistance for Media personnel to acquire various work related equipment and computer facilities. As our nation has become an emerging economy in Asia we need to extend them further assistance to acquire modern technology and equipment.
Therefore, I propose a fresh allocation of Rs 50 million to provide computer accessories, cameras and other equipments to media personnel to develop their creative skills and quality standards.
Women and children particularly among low income families must be given greater attention. Our country has a proud record of reducing maternal and infant mortality. However, we have to continue our efforts to resolve nutritional deficiencies of our mothers and children.
Therefore, we need to expand the Thriposha program to the entire 1.1 million of estimated expectant mothers in our society. The government food production drive provides the major ingredients including soya beans for the Thriposha nutritional food package.
Therefore, I propose to increase the present allocation for the Thriposha program from Rs 1,100 million to Rs 1,500 million so that it will reach all deserving mothers. We must equally concentrate on child development at pre-school age.
I propose to allocate Rs 200 million to popularize pre-school nurseries particularly in rural areas. The pre-school nurseries will be assisted with classroom material and equipment. Nutritionally rich food could also be popularized through these nurseries. I expect Provincial Councils and Local Authorities to play a pivotal role in this aspect.
Our development strategies promote a caring society. We have the elderly, the handicapped, the victims of terrorism and the vulnerable in our society. They need support from all of us. I propose to enhance the related budgetary allocation by Rs 1,000 million to increase the monthly allowance granted to these people.
I also propose to increase the monthly allowance for disabled children, breadwinners and elderly in Samurdhi families to reduce their grief.
Three-wheeler operators, lorry and truck operators and private bus operators provide a valuable service in our economy. In order to improve their services further, I propose to remove the VAT on leasing of assets to these services. Custom duties on spare parts will also be reduced to moderate the maintenance costs.
A substantial number of our people are engaged in self-employment activities. I propose to implement a daily credit scheme for self- employment activities with the assistance of the People’s Bank.
Movable stalls to sell their products will be provided under this new credit scheme to improve their marketability in urban townships. A Secretariat for Self-Employment will be set up in order to facilitate urban self-employment enterprises.
We have a large small enterprise economy. Over 65 percent of tea, rubber, coconut and paddy are grown by small farmers. Over 60 percent of passenger and goods transportation is provided by small entrepreneurs. Urban and semi urban trade is a small enterprise activity.
What these people want from the Government is only security, simple systems and efficient services. Therefore, every government agency must have a special desk with a dedicated officer to attend problems of these small entrepreneurs.
The efficient operation of a small economy needs considerable organizational improvements. I propose to implement a number of projects such as modernization of weekly fairs, organization of three-wheeler stations, mobile shops for self-employment, retail shopping facilities for handicrafts, fresh fruits, vegetables and home needs, marketing outlets for newspapers and magazines, retail shops around religious and public places, small restaurants, flower shops etc. The Gama Neguma program will work with provincial and local authorities to empower this small economy. Institutional arrangements for rural development must be simplified to empower the rural economy.
Therefore, a National Secretariat for Gama Neguma will be established to bring all relevant agencies in the Economic Development Ministry under one umbrella organization.
With the impending global food insecurity, it is important that the society is prepared to face this challenge. Poultry, livestock, fruits and vegetables are good sources of food supply. All these can be our “backyard economy.” Less expensive organic fertilizer can be used for such activities.
Therefore, I propose to launch a National Food Production Drive through the Department of Agriculture and Samurdhi to organize one million home gardens to develop a “backyard economy.”
The increased popularity of bread and other bakery products as well as fast food has influenced our consumption habits. However, as global grain prices are on the rise, it is necessary to develop appropriate technologies to reduce the reliance on imported flour. Sri Lanka is rapidly emerging as a surplus rice producer.
Therefore, I propose to exempt machinery and equipment imported to processes grain mixed bakery products from Custom duties and VAT. I also propose to exempt the rice milling and bakery industry activities with a turnover below Rs 100 million per annum from the Economic Service Charge. Those engaged in rice based bakery products will be given special credit facilities by the State banks.
Consumer Safety Network
People are not born poor. Poverty is manmade. A prolonged delay in legal disputes is one such cause for poverty.
There are approximately 650,000 unsettled legal cases before our judiciary pending justice. As a result people spend valuable time and money. They cannot put lands with disputes for productive use.
Therefore, I propose to implement a 3 year accelerated project to facilitate the effective administration of justice from 2011. Rs 400 million will be committed for this project with an initial provision of Rs 150 million in 2011.
Low income people tend to get marginalized as market forces take over production and distribution activities. Their affordability is limited. Therefore, I propose to expand the Laksathosa and Co-op city outlets rapidly with financial assistance from banks. I also propose to continue the exemption of Laksathosa and Co-operatives from all taxes. I further propose to issue food security cards for low income households.
This will guarantee a minimum quantity of rice, flour, sugar, dhal, dry fish and milk powder at affordable prices. I propose to allocate Rs 750 million to implement this food security system to the poor through the Samurdhi program.
We have every advantage to promote a sport economy. Sri Lanka is already in the world’s cricket map. Now we have developed tennis, rugby and other games.
We must identify youth from our universities, schools, forces, workplaces and rural areas to develop their sports skills and prepare them for global events including Olympics.
Therefore, the Kreeda Shakthi initiative for sportsmen with notable talents will be expanded to train our youth. New international stadium facilities are being developed in Diyagama, Sooriyawewa, Pallekele and Jaffna in addition to such other facilities already available in the country. Investments in tourism relating to sports activities including golf will be given priority. I propose to set up a National Sports Development Fund as a public-private partnership project to promote all infrastructure facilities and attract international sports events.
I also propose to allocate 10 percent of income from the National Lottery and levies on tourist hotel rooms to this fund, to promote sports activities. As we have declared our candidacy to host the 2018 Common Wealth Games, I invite the private sector, particularly the tourism sector, to lead the process to promote Sri Lanka’s as a destination for global events.
Our biological resources are the key pillars of our economy. As our forefathers did, we must recognize the critical link between the country’s river system, biological wealth and socio economic development. Water reservoirs, forestry, the coastal belt, mountains, rivers and lagoons are critical factors of environment. In view of this, the Ministry of Environment will introduce necessary legislation and strategies to protect the country’s biodiversity. It is also proposed to introduce an integrated water management system based on the country’s 103 river basins.
The budgetary resources that will be channelled through the Ministry of Environment will be given high priority for a rapid re-forestation program. I also propose that at least one land-filled site is identified for waste management in each Pradeshiyasabha division to improve waste management systems.
I propose to allocate Rs 500 million from the regional development initiatives, to spend on this program.
This Budget provides Rs 413 billion for public investment in roads, electricity, water, irrigation, ports and aviation activities. Capital investment in the continuing expansion of a power generation and distribution system is likely to exceed Rs 64 billion over the two years. We have already prevented power cuts and made electricity available almost to everybody. There is a cost to all these luxuries. Therefore I propose to make a revision to the electricity tariff structure from January 2011. I propose to reduce tariff by 25 percent to religious places, Government hospitals, schools, vocational training institutions and universities. The present tariff rate will continue for small businesses and SMEs. I propose a eight percent increase in tariff for other users except for the first 90 units.
We have earmarked Rs 109 billion for the continued expansion of the road sector. Our aim is to develop national and provincial roads in the entire country before 2013. Therefore, I propose to allocate a further sum of Rs. 20 billion in support of the provincial road development initiative. Registration fees on motor vehicles need revision, considering improvement in our road network. However, no revision will be made for three wheelers, agricultural and goods transportation vehicles. The proposed revision will increase revenue by Rs 1,000 million. I also request Provincial Council to increase the annual revenue licence fee for motor vehicles by 10 percent.
Streamlining of Revenue Administration
The operation of the Provincial Turnover Tax and various national taxes results in tax on tax. That causes a high cost particularly to SMEs and consumers. Hence, I propose to remove the Provincial Turnover Tax. The Government will credit one third of revenue collected from the Nation Building Tax and entirety of the stamp duty collection and 70 percent of the motor vehicle registration fee, to the Provincial Council revenue account. As I propose to implement this proposal from January 2011, I request Provincial Councils to adopt applicable changes to their regulations.
Revenue of local authorities has eroded as properties are not valued realistically. Therefore, I propose that the valuation of property based rent income of local authorities and other agencies must be done only by the Department of Valuation. Revenue from these arrangements is estimated over Rs 2,000 million per year. The local authorities can use such income to improve the environment, street lighting, waste disposal, sanitation etc.
The Economic Service Charge will be simplified within a four band rate structure. I propose to reduce the Nation Building Tax from three percent to two percent. The applicable threshold will be fixed at Rs 500,000 to broaden its base. Manufacturing and processing industries below Rs 50 million and hotels below the three star category will be exempted. I propose to abolish the Social Responsibility Levy, Rural Infrastructure Development Levy and Debit Tax to simplify taxation.
I propose to exempt government agencies from Construction Guarantee Fund Levy to reduce the cost of public investments. I propose to exempt Ceylon Electricity Board, Ceylon Petroleum Corporation, National Water Supply and Drainage Board and Sri Lanka Ports Authority from income taxes for a period of five years. They will be required to pay one fourth of their profit as deemed dividend to the Government. The VAT suspension scheme is simplified to encourage SMEs to graduate to the VAT system over 10 years.
All tax refunds will be made by account payee cheques only. I propose that tax payments on VAT and NBT will be required to be made on a monthly basis while tax returns will have to be filed on a quarterly basis. I propose to increase the depreciation allowance on plant and machinery to one third and on buildings one tenth and reduce distributable profits for deemed dividend tax to 10 percent to promote investment.
I propose to appoint an Independent Revenue Commission (IRC) pertaining to Customs, Excise and Inland Revenue to hear disputed tax issues for determination within 90 days.
Any further actions after receiving a determination will be allowed only upon the payment of the disputed tax to a special account. The existing Board of Review will be dissolved.
Idle funds other than six months working capital requirements in the hands of Government agencies including promotional and regulatory bodies will be transferred to the Consolidated Fund on or before January 31, 2011.
Thereafter, such agencies should ensure no funds will be retained with them other than the requirement for six months working capital requirements without the approval of the Treasury.
I propose to further simplify the Custom duty structure as a four band rate structure. The industries with local value addition will be promoted by allowing access to raw materials and machinery at a low rate of duties to encourage advanced technology and upgrade the production processes.
The Government will also introduce a new policy framework for bonded cargo to develop Sri Lanka as a trading hub. The special Commodity Levy Act will apply to selected imports to stabilize price fluctuations of sensitive products in the domestic economy.
The Government will implement bilateral and multilateral Trade Agreements and the WTO Agreement having regard to environmental, health and security considerations.
The new Revenue Protection Order giving effect to the proposed charges will be issued tonight. Antidumping, countervailing as well as a legislation requiring labelling in all three languages will be introduced to safeguard the national interest. The present reward scheme will be reformulated in consultation with the Salaries and Cadre Commission to design a more equitable incentive scheme to all officers in the Customs.
In the process of my pre budget consultations, I realized that further jobs need to be created at managerial and technical levels, to implement development work.
Therefore, I propose to recruit 10,000 graduates to the all island services in the fields of engineering, administration, planning, teaching, technical services, agricultural extension and other skills. A further 1,500 graduates will be recruited as Management Trainees to State Banks and other financial institutions in order to introduce younger staff.
The Ministry of Defence has brought to my notice 1,500 nurses are needed for its hospitals. These recruitments will absorb graduates and other qualified youth who are seeking employment.
I gave serious thoughts to salary related issues of public servants. An increase of Rs 100 per month for salaries and pensions will cost Rs 1.9 billion annually. As such, wage increases are not easy. However, public servants deserve some relief without compromising development priorities.
We cannot forget the exemplary manner in which they managed the tsunami and liberated people from terrorists while also carrying out their routine responsibilities. We need to prompt public servants to work harder and serve the people. Their concerns must be recognized and resolved to motivate them. Many public servants have lost increments due to prevailing anomalies.
Certain provincial teachers are yet to receive payments for a previous anomaly correction. Associated anomalies of teachers should be corrected through the new Service Minute.
In this background, I propose to grant a five percent increase as a non pensionable allowance to all public servants and security forces. This will maintain the present structure of 1:4 in the public service salaries. I also propose to increase the Cost-of- Living allowance by Rs 600 per month from January 2011 to all public servants and security forces in non staff categories.
I propose to increase this allowance to staff categories from July 2011. I propose to implement the recommendations of the Salaries and Cadre Commission with effect from July 2011 to correct prevailing anomalies of all non staff employees in the public service.
I further propose to implement the applicable salaries to teachers in terms of the new Service Minute with effect from January 2011. I also propose to settle salary arrears of teachers at provincial level.
For all pensioners, I propose to increase their Cost-of-Living allowance by Rs 250 per month from January 2011. In order to correct anomalies in the pension structure, I propose an increase of Rs 750 per month to those who retired prior to 2003 and Rs 250 for those who retired between 2003 and 2006.
This will be effective from July 2011. My proposals to increase salaries and the Cost-of-Living allowance will benefit nearly 450,000 pensioners and 1.3 million public servants.
The professional categories of public servants need to be incentivized to sustain improved quality standards. Academic and research staff of our universities and research institutions, medical, engineering, legal and specific managerial categories perform distinctly different responsibilities.
As such, their services need to be valued.
Therefore, I propose to increase the specific professional allowances to university academic staff, medical professionals and other specific professionals based on their professional and research specialties, to 25 percent of their salaries.
I also propose to extend concessionary duty to import motor vehicles for professional and managerial categories of public servants working in the Government and public enterprises. The proposed changes of salaries and pensions as well as recruitments will cost Rs 33 billion in 2011.
I wish to table relevant technical notes to my proposals. Amendments to the Appropriation Bill to incorporate borrowing limits and related revised estimates to the Draft Budget Estimates will be presented to the Parliament before the commencement of the Committee stage debate.
Let me summarize this Budget. The total revenue in 2011 is projected at Rs 963 billion. Recurrent expenditure is likely to be Rs 1,017 billion. Therefore the basic deficit in our Budget is around Rs 54 billion. As our major investments in infrastructure, human resources, rural development and social security will be over this deficit, the Budget deficit will amount to Rs 434 billion which is 6.8 percent of GDP in 2011.
Our medium term objective is to eliminate our basic deficit and move towards a budget deficit of around of 5 percent of GDP.
The Fiscal Management Report 2011 provides relevant details. Neo liberal ideologists must understand that this deficit is not to bailout failed bankrupt companies.
This deficit involves provisions for free services, social security and development expenditure.
My attempt in this Budget is to sustain our achievements and manage future risks in our economy. We have achieved an economic growth rate of near 8 percent. Inflation has stabilized at around 6 percent. Poverty has come down to 7.6 percent and unemployment to 5 percent. These are all achievements within 5 years. This argues well in favour of our development strategy.
The Central Bank has built up US $7 billion reserves. Our banking system has a further US$ 1.5 billion. So the economy has sufficient external assets.
All these are achievements that all of us must be proud of. A low rate of inflation of around 5-6 percent, economic growth rate of around 7-8 percent and a society free from poverty are our medium term targets. Our collective effort now onwards must be to maintain these positive trends in our economy over the medium term.
Raising income beyond US$ 4,000 per capita is not the only objective in our strategy. People need equitable opportunities to enjoy such high income.
They must have equal access to roads, electricity, water, communications, housing and health facilities. These infrastructures provide opportunities for a meaningful economic life for them. Farmers ask for water, seeds, credit and fertilizer. Self employed people ask for a trouble free environment to do their own businesses.
Above all, everybody in the society must have equal access to education. That is the surest way of providing equality in economic growth. We must understand that we cannot let our young people to leave our country or turn to other options, because they cannot have better education, quality jobs and secured living, here.
These facilities must be made available to everybody in our society, in Sri Lanka itself. It is then that such facilities currently confined only to those who can afford, can be made available even to those who cannot afford. Our Government under no circumstance will privatize or abolish free education or health services. They will not only be protected but strengthened with greater resources from the National Budget. Equally, we will introduce laws, regulations and standards to encourage all other private educational institutions to comply with our national requirements. We must guarantee meaningful educational opportunities to our children.
We have to be futuristic. Our sole responsibility is to manage the present to build a better future. That should be a future with opportunities. Let us leave our differences aside and place the country first. Let us place the future of our children first. My policy strategy, commitment and leadership aims at building a prosperous future for our children.
Their future lies in a knowledge economy. Let us join hands to make our country the Emerging Wonder of Asia.
Courtesy: Daily News