2015 Budget Highlights

Transcription

1 215 Budget Highlights Special Report 27 th October 214 Fiscal stimulus in line with the growth formula 215 Budget looks into fiscal expansion, targeting long term growth agenda of the government with the president emphasizing on growth targets to be achieved in 22. Accordingly budget allocations see significant growth in public investment with notable attention to various segments in education and health. Furthermore several measures have been taken targeting the living standards of citizens with increased allocation for personal emoluments. High expenditure allocations are to be met with higher budgeted revenue targeted mainly from tax rationalization and broadening the tax base. Fiscal deficit is expected to be 4.6% of GDP for 215. From the capital market perspective budget lacked significant impacts compared to previous budget proposals. However in general listed companies will benefit from energy cost reduction, especially for the energy intensive industries. 215 Budget Revenue % Tax Revenue , Income Tax Taxes on Goods & Services Taxes on External Trade Non Tax Revenue Grants Total Revenue , Total Revenue 95 1,68 1,23 1,422 1,689 Total Expenditure 1,4 1,557 1,712 1,922 2,21 Budget Deficit Budget Deficit (% of GDP) *Figures are in Rs Billions, except for percentage. Salient Features of the Budget A special refinance facility scheme which is re-payable within 5 years will be provided at 6% interest rate to facilitate the settlement of arrears and arrears in taxes and arrears in EPF/ETF up to This is budgeted to increase tax collection by Rs 4 billion. Pre budget electricity tariff cut down by 25% to domestic users is extended to SME s, restaurants and small shops consuming electricity below 3 units per month. For all other industries a 15% reduction is proposed, effective from November 214. The present VAT rate of 12% will be reduced to 11%. Profits and income earned by Unit Trusts from investments made on or after 1 January 215, in US dollar deposits / US dollar securities listed in any foreign stock exchange is to be exempt from Income Tax. Such income is currently taxed at 1%. Flat withholding tax rate of 2.5% on interest income for individuals. Senior citizens will be exempted from WHT. Raise the minimum salary of public servants Rs. 15, per month and increase cost of living allowance to Rs. 1,. Accordingly, the minimum monthly income of a public servant will increase to Rs. 25,. Increase in minimum wage to Rs. 1, for all private sector employees. increase the employer contribution to EPF by 2% to 14%. Maximum employment income tax to be reduced to 16%. (currently maximum income tax is 24%). For a new undertaking of exports that makes a minimum investment of USD 2mn, a 5% income tax discount for 3 years is provided. 5% reduction in the tax rate on profits from any manufacturing business (other than liquor or tobacco) for the period of 5 years (up to a maximum of Rs.5mn), given the business is expanded to areas outside Western Province, Investment in depreciable fixed assets more than Rs.3mn, Investment is made within the period 1 April 215 to 1 April 217 and presently liable to tax at 28%. 215 Budget Expenditure 2,5. 2,. 1,5. 1, , Total Revenue Budget Deficit Receipts and expenditure % Recurrent 1,386. 1, Salaries and Wages Interest Subsidies and Transfers Other Goods & Services Public Investment Education and Health Infrastructure Other Total Expenditure Analysts: 1,922. 2, Total Expenditure % Budget Deficit (% of GDP) Shehan Asela Bartholomeuz shehanb@lolcsecurities.com Damith Wasantha damithwa@lolcsecurities.com Hiruni Perera hirunipe@lolcsecurities.com

2 Budget Impact for Listed Counters Motor Excise Special Provision tax on motor vehicle imports tax in lieu of all multiple taxes at the point of import. It is expected to reduce tax for various classes of motor vehicles. Positive Taxes on all electric cars will be reduced to 25%. Positive Sri Lankan expats to be granted dual citizenship or 5 year work visas and the facility to import a vehicle worth 6% of the total annual foreign revenue they bring into the country, inclusive of tax concessions. Negative The budget proposes duty concessions on the importation of new buses, engines and gear boxes for any buses that have operated for a minimum of 5 years. Positive (ASHO) In order to facilitate transportation import taxes on vans, small buses and trucks will be reduced. Positive (ASHO, DIMO) Banking & Finance 12% annual interest rate for deposits of pensioners and elders who maintain their savings in a state bank. Central Bank has also permitted Finance Companies to pay 11% interest on such deposits. Negative (for companies dependent on deposit funding) Central Bank will exempt the statutory reserve requirement on individual deposits maintained by the elderly people in all commercial banks. Positive Plantation Cess tax on rubber imports to be increased by LKR 1/Kg. Positive A credit scheme with an 8-year maturity at 6 percent interest to all well performing companies that will commit, on an agreed area for planting and replanting, for social development of plantation workers and to increase the volume of value added tea exports. Positive Poultry Provision of maize at a subsidized price of LKR 4 per kg to small poultry farms. Positive The poultry production industry to be provided export incentives for chicken and eggs Positive Food and Beverage Increase the guaranteed price of liquid milk to Rs. 6 per liter to increase local milk production. Positive Price of yoghurt and milk powder by local manufacturers to be dropped by LKR 3 and LKR 1 respectively. Negative Cess of Rs. 15 per kilo on imported milk powder. Positive (NEST,LLMP) Increase of exercise taxes on liquor and cigarettes. Negative (CTC, LION, BREW, DIST) Retail VAT of 12% will be reduced to 11%. Positive Supermarket operators to limit margin from domestic suppliers to 25%. Reduce prices of all essential goods by at least 1 percent. Negative 2 LOLC Securities Limited

3 Manufacturing Electricity tariff reduction. Positive It is proposed to grant the few concessions to new exports undertaking that makes a minimum investment of USD 2mn such as an accelerated depreciation allowance for investment in depreciable assets, an exemption from dividend tax for 5 years and a 5% income tax discount for 3 years. Positive 5% reduction in the tax rate on profits from any manufacturing business (other than liquor or tobacco) for the period of 5 years (up to a maximumof Rs.5mn), if the business is expanded to areas outside Western Province.(- Investment in depreciable fixed assets more than Rs.3mn and Investment is made within the period 1 April 215 to 1 April 217,presently liable to tax at 28%. Positive In order to encourage the jewellery exporters it is proposed a duty waiver of 5% on importation of gold via foreign currency accounts. Positive Reduce import taxes of packaging material required for exports suitably without affecting local industries that manufacture such material. Construction Several expressways to be completed by 217. Positive Gaming Levy of USD 1 per person Entrance Fee to premises where casino entertainement activities take place and raise the Gaming Levy to 1 percent of turnover. Negative (JKH - Waterfront Project) 3 LOLC Securities Limited

4 Summary of the Budget: Rs Billion % Total Revenue and Grants 1,422 1, % Total Revenue 1,394 1, % Tax Revenue 1,189 1, % Income Tax % Taxes on Goods and Services % Taxes on External Trade % Non Tax Revenue % Grants % Total Expenditure 1,922. 2, % Recurrent 1,386. 1, % Salaries and Wages % Other Goods and Services % Interest % Subsidies and Transfers % Public Investment % Education and Health % Infrastructure % Other % Revenue Surplus(+)/Deficit(-) X Budget Deficit Surplus(+)/Deficit(-) % Total Financing % Total Foreign Financing % Net Foreign Borrowings % Foreign Borrowings-Gross % Debt Repayments % Foreign Commercial % Total Domestic Financing Non-Bank Borrowings % Foreign Investments in T-Bills and T-Bonds % Bank Borrowings % Revenue and Grants/GDP (%) % Revenue /GDP (%) % Tax/GDP (%) % Expenditure/GDP (%) % Current Expenditure/GDP (%) % Public Investment/GDP (%) % Budget Surplus (+) / Deficit (-) GDP (%) % Revenue Surplus (+) / Deficit (-) GDP (%) X 4 LOLC Securities Limited

5 Key Revenue Proposals New Revenue Proposals Rs. million Consolidation of motor vehicle taxes into Excise special Provision Tax 5, Consolidation of Excise Special Provision Tax - Cigarettes 6, Consolidation of Excise Ordinance - Liquor 8, Refinance facility for payment of tax arrears 4, Gaming Levy and Entrance Fee for casino entertainment 2,5 Land Lease Tax under Land (Restriction) Alienation Act for foreigners 2, Revision of Import Duty / CESS 1,5 CESS on rubber imports 5 Key Expenditure Proposals Proposals Rs. Million Community Water Supply Projects - Department of Community Water Supply 75 Legal Reforms and facilities for Judges 75 Acceleration of major irrigation schemes 1, River reservoir development 2, Supplementary provision for Provincial and Rural road Development (I- Project) 15, Strengthening of Sri Lanka Railway 2, Modernization of the Postal Department 75 Rehabilitation of abandon agrarian and paddy lands 1,9 Ministry of Planation - Productivity improvement initiative of Tea small holders 1, Rubber price guarantee scheme and development - Rubber Development Department 3, Modernization of Rubber Research Institute and Tea and Research Institute 1, Expansion of facilities for Kidney patient hospitals 5 Expansion of market network of fisheries Corporation 75 3 year modernization program for 1 Mahindodaya schools 5, Special hospitals for women and children 75 Sanitation facilities for rural schools 1,5 Development of Teacher Training Colleges 75 Recruitment of 5, teachers 4, Skills Education Scholarships 9 University Research and Development Initiatives 75 National Research Council s initiatives 5 Nenasala Centre Development Programme 1,5 Recruitment of Sports Instructors 75 Development of 25, model Divi Neguma villages 2, Child Nutrition Programme 5 Promotion of Skills development for foreign employment 5 Issuance of land titles 5 Market Complex at Charmers Granary 1, Greater Colombo flood protection and environment development 1, Colombo Waste Management Project 4, Rehabilitation of Depleted Housing Schemes 75 Low income housing 75 Sanitation and toilet facilities for plantation housing 1, Owner driven housing for plantation community 75 Payment for elderly persons 1, Rehabilitation of Sugathadasa National Stadium 2,25 Assistance to Local Government 1,5 Recruitment of Technical Assistants to Local Authorities 6 Development expenditure of Provincial Councils 4, Ranaviru Parents Assistance Programme 5 Allowances for July Strikes 1, Allowances for third child birth (Tri services and Police) 5 Expansion of people s supermarket chain 1,5 Public servants salaries and allowance 5, Correction of pension anomalies 35, Youth employment programme 7, 5 LOLC Securities Limited

6 Reciepts and Expenditure Variation % Reciepts Variation Total Revenue and Grants Total Expenditure -12 Income Tax Taxes on External Trade Total Revenue Taxes on Goods and Services Non Tax Revenue Budget Surplus(+) /Deficit(-) Budget Deficit Expenditure Variation Personal Emoluments Interest Subsidies and Transfers Other Goods and Services % Public Investments Public Investment Public Investment (as % of GDP) Budget Financing Variation 215 Budget Deficit Financing Breakdown 13% 8% 48% 3 31% Net Foreign Financing Non-Banking Borrowings Net Foreign Financing Total Domestic Financing Foreign Investments in T-Bill and T-Bonds Bank Borrowings 6 LOLC Securities Limited

7 Discussion The budget 215 has presented numerous fiscal stimulus efforts, on achieving aggressive long term growth targets of the economy. It has put more emphasis on socio economic segments with higher recurrent expenditure on salaries and wages compared to previous budgets as well as higher allocation for education and health. Despite the aggressive fiscal expansion on expenditure side, government continued on fiscal consolidation by reducing the budget deficit targets. Accordingly for 215 budget deficit figure is targeted at 4.6% of GDP and for 216 and 217 the figure will further decline to 3.8% and 3% respectively. This will result in less financing burden for the economy with debt to GDP curtailed down to 65% by 216. To achieve the lower deficit figure it is expected to have revenue surplus for the first time in 214 recording.1% of GDP and will continue improve to 1.1% of GDP by 215. However, revenue targets have come under pressure, as 214 figures have fallen behind the estimates of Budget 214. Accordingly Revenue Surplus has been revised down to.1% of GDP from budgeted 1.1% in 214. There has been a significant increase in Salaries & Wages on revised figure for 214 and Budget Deficit of 5% is expected to be achieved by the end of 214 mainly through a cutback in public investments (reduction of Public Investment/GDP from budgeted 6.7% to 5.6% in 214). For the period from January to September Fiscal deficit for 214 has been 4.9%. On the funding side, the balance has shifted towards foreign financing with government been able to access foreign capital markets at lower cost. Foreign funding will account to 52% and 48% respectively of 214 and 215 budget deficits. Sri Lanka is on the fast economic growth trajectory and expects to surpass middle income level and reach per capita GDP of USD 7,5 by 22. The economy is shifting towards low interest, low inflation, and stable currency environment to gear towards ambitious economic growth. The economy in recent times has seen monetary stimulus bringing interest rates significantly down, but at the same time has maintained stable external account with stronger rupee. The inflation has been in single digit for 68 months and is expected to settle in low single digit levels bringing price stability to the economy. But in the short term, consumption has slowed down with lower private credit growth and there is a requirement for short term stimulus, which could be seen in the budget through high allocation for recurrent expenditure and curtailing taxes on some of the consumption items to direct the economy in the growth trajectory. At the same time, in achieving high income status in future the focus needs to be given to segments such as knowledge economy, which could be witnessed with higher allocation in education for instance. In summary Budget 215 provides fiscal stimulus required for an aggressive growth of the economy, but maintaining stable deficit figures with optimistic revenue targets. On the macro economic outlook, we expect continued low interest and low inflation environment with support from fiscal consolidation with lower forecasted budget deficits. At the same time fast economic growth can be expected geared from continued increase in public investments. 7 LOLC Securities Limited

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