BUDGET REVIEW th Nov 2016

Transcription

1 BUDGET REVIEW th Nov 2016 DIGITALIZATION TABS Digitalization Tax Simplification Corporate Tax 3 Tier Education Support REVENUE EXPENDITURE REVENUE SURPLUS BUDGET DEFICIT LKR 2,098 Bn (15.5% of GDP) LKR 2,723 Bn (20.2% of GDP) LKR 65 Bn (+0.5% of GDP) LKR -625 Bn (-4.6% of GDP) Unemployment Healthcare Enhancement Commodity Exchange Real Estate Investment Trusts Private Public Partnership The Budget for 2017 focused on simplifying the tax system and removing tax exemptions with the view to enhance revenue while focusing measures to provide educational support and improving healthcare facilities and staff. Government plans on a sustained path of fiscal consolidation as it aims for the first time to achieve a revenue surplus and to reduce budget deficit to 4.6% of GDP for 2017 while the Debt to GDP ratio is expected to improve to 75.0%. The Government s vision to enhance revenue has resulted in measures to provide higher focus on removing tax exemptions in order to broad base the taxes and increase taxes in certain areas. Further, simplification of taxes were adopted with removal of cess on 100 items, introducing 3 corporate rates and revising personal income taxes. The Government has focused on measures to provide education support especially for tertiary education while was bringing in laws to streamline private education. Heavy funding has been allocated to enhance healthcare via additional infrastructure and capacity of healthcare education. Government has also targeted to promote PPPs for large investment projects. Significant Capital Market Development measures have been proposed including the Demutualization of CSE, amendment of SEC Act, trading platform for Government Securities, REITs, the introduction of a Commodity Exchange and listing of non-strategic enterprises in the CSE.

2 Table of Contents 1.0 FISCAL STRATEGY... 3 BUDGET SUMMARY FOR MID TERM MACRO FISCAL FRAMEWORK JAN SEP 2016 FISCAL OUTLOOK ANALYSIS ON APPROPRIATION BILL GOVERNMENT EXPENDITURE... 6 GOVERNMENT REVENUE CHANGES BUDGET AND THE CAPITAL MARKET CAPITAL MARKET DEVELOPMENTS BILLS, BONDS, CORPORATE DEBT, EQUITY BUDGET 2017 & LISTED SECURITIES

3 1.0 FISCAL STRATEGY The Government s fiscal strategy is focused on revenue enhancement invariably leading towards a sustained path of fiscal consolidation. The medium term fiscal strategy is expected to reduce overall budget deficit to 4.7% of GDP by 2017 and 3.5% by 2020 further strengthening its fiscal position. The fiscal position is expected to be improved primarily through broadbasing the tax system via minimizing tax exemptions while revising corporate rate and personal tax regimes into a more simpler form. Further simplification measures were led by removing Cess of 100 items while increasing Withholding Tax rate. Government Revenue is expected to move into a surplus for the first time reaching 0.5% of GDP in Further, Budget deficit is anticipated to be reduce to 4.6% with Debt to GDP ratio expected to fall to 75%. The Government plans to grow revenue to 15.5% of GDP to LKR 2,098bn for 2017 with 87% of the revenue expected through taxes, while Taxes on Goods & Services projecting to take the top slot contributing 52% of tax revenue. Non-tax revenue is forecasted to be 9% of the total expected government revenue. The total planned expenditure for 2017 is LKR 2,723bn resulting in 20.2% of GDP, growing from 18.9 of GDP in Recurrent expenditure is forecasted to be controlled at 74% of total expenditure constituting 15.0% of GDP maintained at the 2016 planned figure of 15.0% of GDP. Salaries and interest payments are expected to be the largest components of recurrent expenditure amounting to 24.8% and 25.0% of recurrent expenditure respectively. Government plans to grow public investments to 5.2% of GDP with the largest investment continuing to be for highways where 1.3% of GDP (29% of public investments) is expected to be spent. 3

4 1.1 Budget Summary for 2017 Summary of the Budget: LKR 'Bn Budget Total Revenue & Grants 1,515 1,658 2,098 Total Revenue 1,509 1,648 2,088 Tax Revenue 1,356 1,432 1,821 Income Tax Taxes on Goods & Services Taxes on External Trade Non-Tax Revenue PC Tax Sharing and Devolved Rev Grants Total Expenditure 2,345 2,328 2,723 Recurrent 1,756 1,842 2,024 Salaries & Wages including PCs Other Goods & Services incl. PCs Interest Subsidies & Transfers Public Investment Education and Health Infrastructure Other Revenue Surplus(+)/Deficit (-) Primary Surplus (+)/Deficit(-) Budget Surplus (+)/Deficit(-) Total Financing Total Foreign Financing Foreign Borrowings-Gross Project and Programme Loans Foreign Commercial Debt Repayments Total Domestic Financing Non-Bank Financing Foreign Inv. in T-Bills & T-Bonds Bank borrowings Summary of the Budget ( ) (Percentage of GDP) Revenue and Grants/GDP (%) Total Revenue/GDP (%) Tax Revenue/GDP (%) Non Tax Revenue/GDP (%) PC Tax Sharing and Devolved Rev/GDP (%) Grants/GDP (%) Total Expenditure/GDP (%) Recurrent Expenditure/GDP (%) Non Interest/ GDP (%) Interest/ GDP (%) Public Investment/GDP (%) Revenue Surplus (+)/Deficit (-)/GDP (%) Primary Surplus (+)/Deficit (-)/GDP (%) Budget Surplus (+)/Deficit (-)/GDP (%) Medium Term Macro Fiscal Framework Medium Term Macro Fiscal Framework : (As a % of GDP) (Revised) 2017 Budget Total Revenue and Grants Total Revenue Tax Revenue Income Tax VAT Excise Tax Tax on External Trade Other Non Tax Revenue PC Tax Sharing & Devolved Revenue Grants Expenditure Recurrent Expenditure Salaries and Wages Interest Payments Subsidies and Transfers Other Goods and Services Expenses from PC Revenue Public Investment o/w Highways Education Health Irrigation Transport Revenue Deficit (-) / Surplus (+) (2.2) (1.5) (0.3) Budget Deficit (7.4) (5.4) (4.7) (4.2) (3.8) (3.5) Government Debt (% of GDP)

5 1.3 Jan Sep 2016 Fiscal Outlook Summary of the Budget (Jan - Sep): Economic Classification LKR 'Mn YoY (%) Revenue and Grants 959,553 1,180, % Revenue 958,892 1,179, % Tax 888,241 1,067, % Non Tax 70, , % Grants % Expenditure 1,532,544 1,686, % Current 1,213,087 1,308, % Salaries 414, , % Interest Payments 426, , % Other 371, , % Public Investments 311, , % Other 8,015-13, % Revenue Deficit (-)/Surplus (+) (254,195) (129,009) 49.2% Overall Deficit (-)/Surplus (+) (572,991) (505,971) 11.7% Financing 572, , % Net Foreign Financing 21, , % Net Domestic Financing 551, , % 5

6 2.0 ANALYSIS ON APPROPRIATION BILL 2.1 Government Expenditure Total Expenditure Ministry of Defense Ministry of Finance Ministry of Provincial Councils and Local Government Ministry of Public Administration and Management Ministry of Higher Education and Highways Ministry of Health, Nutrition and Indigenous Medicine Ministry of Education Ministry of Law and Order and Southern Development Ministry of Mahaweli Development and Environment Ministry of Transport and Civil Aviation Ministry of Home Affairs Ministry of City Planning and Water Supply Ministry of Agriculture Ministry of Irrigation and Water Resources Management Special Spending Units Ministry of Prison Reforms, Rehabilitation, Resettlement and Hindu Religious Affairs Ministry of Social Empowerment and Welfare Ministry of Megapolis and Western Development Ministry of Posts, Postal Services and Muslim Religious Affairs Ministry of National Policies and Economic Affairs Ministry of Justice Ministry of Industry and Commerce Ministry of Foreign Affairs Ministry of Skills, Development and Vocational Training Ministry of Lands Ministry of Rural Economic Affairs Ministry of Plantation Industries Ministry of Internal Affairs, Wyamba Development and Cultural Affairs Ministry of Parliamentary Reforms and Mass Media Ministry of Labour and Trade Union Relations Ministry of Fisheries and Aquatic Resources Development Ministry of Disaster Management Ministry of Sports Ministry of Science, Technology and Research Ministry of Sustainable Development and Wild life Ministry of Hill Country New Villages, Infrastructure and Community Development Ministry of Housing and Construction Ministry of Primary Industries Ministry of Women and Child Affairs Ministry of Telecommunication and Digital Infrastructure Ministry of Ports and Shipping Ministry of Buddha Sasana Ministry of National Integration and Reconciliation Ministry of Special Assignment Ministry of Power and Renewable Energy Ministry of Development Strategy and International Trade Ministry of Tourism Development and Christian Religious Affairs Ministry of Foreign Employment Ministry of National Dialogue Ministry of Regional Development Ministry of Public Enterprise Development Ministry of Petroleum Resources Development Recurrent Expenditure LKR 'Bn Capital Expenditure LKR 'Bn

7 Recurrent Expenditure LKR 'Bn Capital Expenditure LKR 'Bn Ministry of Defense Ministry of Finance Ministry of Public Administration and Ministry of Provincial Councils and Local Ministry of Health, Nutrition and Indigenous Ministry of Law and Order and Southern Ministry of Education Ministry of Higher Education and Highways Ministry of Home Affairs Ministry of Transport and Civil Aviation Ministry of Agriculture Ministry of Social Empowerment and Welfare Ministry of Posts, Postal Services and Special Spending Units Ministry of Foreign Affairs Ministry of Justice Ministry of Prison Reforms, Rehabilitation, Ministry of Skills, Development and Ministry of Mahaweli Development and Ministry of Lands Ministry of Irrigation and Water Resources Ministry of National Policies and Economic Ministry of Internal Affairs, Wyamba Ministry of Parliamentary Reforms and Mass Ministry of Plantation Industries Ministry of Industry and Commerce Ministry of Megapolis and Western Ministry of Labour and Trade Union Relations Ministry of Sustainable Development and Ministry of Disaster Management Ministry of Fisheries and Aquatic Resources Ministry of Science, Technology and Research Ministry of Women and Child Affairs Ministry of Rural Economic Affairs Ministry of Sports Ministry of Buddha Sasana Ministry of Housing and Construction Ministry of Primary Industries Ministry of Special Assignment Ministry of Foreign Employment Ministry of Development Strategy and Ministry of National Dialogue Ministry of Power and Renewable Energy Ministry of Regional Development Ministry of Hill Country New Villages, Ministry of City Planning and Water Supply Ministry of Public Enterprise Development Ministry of Ports and Shipping Ministry of Petroleum Resources Ministry of Tourism Development and Ministry of Telecommunication and Digital Ministry of National Integration and Ministry of Higher Education and Ministry of Mahaweli Development Ministry of Provincial Councils and Ministry of Finance Ministry of Education Ministry of Health, Nutrition and Ministry of Transport and Civil Aviation Ministry of Defense Ministry of City Planning and Water Ministry of Home Affairs Ministry of Irrigation and Water Ministry of Megapolis and Western Ministry of Prison Reforms, Ministry of National Policies and Ministry of Industry and Commerce Ministry of Rural Economic Affairs Ministry of Agriculture Special Spending Units Ministry of Law and Order and Ministry of Plantation Industries Ministry of Internal Affairs, Wyamba Ministry of Skills, Development and Ministry of Fisheries and Aquatic Ministry of Labour and Trade Union Ministry of Lands Ministry of Sports Ministry of Hill Country New Villages, Ministry of Disaster Management Ministry of Justice Ministry of Science, Technology and Ministry of Primary Industries Ministry of Housing and Construction Ministry of Telecommunication and Ministry of Parliamentary Reforms Ministry of Ports and Shipping Ministry of Social Empowerment and Ministry of National Integration and Ministry of Sustainable Development Ministry of Women and Child Affairs Ministry of Buddha Sasana Ministry of Public Administration and Ministry of Tourism Development and Ministry of Power and Renewable Ministry of Special Assignment Ministry of Posts, Postal Services and Ministry of Foreign Affairs Ministry of Development Strategy and Ministry of Regional Development Ministry of National Dialogue Ministry of Public Enterprise Ministry of Petroleum Resources Ministry of Foreign Employment

8 300 Recurrent Expenditure 2016 vs : Recurrent Expenditure LKR 'Bn : Recurrent Expenditure LKR 'Bn Capital Expenditure 2016 vs : Capital Expenditure LKR 'Bn 2017 : Capital Expenditure LKR 'Bn With the aim of narrowing the budget deficit the Appropriation Bill for 2017 projected a total Government expenditure for 2017 to be LKR 1.82 Trillion (18.8% of GDP) as opposed to LKR 1.94 Trillion for This is because the projected fiscal outlook for the following year reflects vulnerabilities in the areas of financing needs and debt sustainability. The bulk of the outlay, amounting to LKR 1.2 trillion is allocated for recurrent expenditure while total capital expenditure stands at LKR 610Mn. The allocation for Defence for 2017 is LKR 284Bn, lower in comparison to LKR 306Bn in Finance ministry has been allocated a sum of LKR 242Bn against LKR 107Bn in Further, Ministry of Provincial Councils and Local Government and the Ministry of Public Administration and Management have been allocated LKR 214Bn and LKR 165Bn relative to LKR 238Bn and LKR 156Bn in Budget allocated to school education has experienced a significant decline by 131Bn YoY to LKR 36Bn for the year LKR 163Bn has been allocated for higher education and highways and LKR 160 billion is allocated towards health, nutrition and indigenous medicine respectively. Expenditure on special spending units is up by LKR 6.3Bn. Allocations for the President and the Prime Minister have increased by LKR 4Bn and LKR 768Mn respectively for development and operational activities. 8

9 2.2 Government Revenue Changes for 2017 Government s direction is to increase the direct tax component to 40% from around 20% at present and gradually reduce the indirect taxes to 60% from around 80% in the medium term. The corporate income tax rate is proposed to be revised to create a three tier structure of 14%, 28% and 40%. Liquor, tobacco, betting and gaming, etc. will be continued at the rate of 40%; SMEs, Exporters of goods and services, Agricultural sector and Education sector will be subjected to 14% and all others including banking, finance, manufacturing and trading will be subjected to 28%. Income tax rate of 10% currently applicable on funds, dividends, treasury bills and bonds will be increased to 14%. The SME category will be redefined in a rationalized manner. With Holding Tax (WHT) on interest income will be increased to 5% from the present level. Proposed to remove the exemptions applicable on the income from the investment on listed securities, Dividends, Unit Trusts and other instruments. Notional Tax Credit applicable on the secondary market transaction of securities also will be removed. Income tax rate structure of individuals, including PAYE is proposed to be revised and the maximum rate will be 24%. Earnings in excess of tax free threshold will be taxed at the progressive rate structure which will be 4% to 24% having equal slabs of LKR 600,000 per annum at each level. PAYE rate schedule will be revised in line with the personal income tax rates and all the exemptions applicable on various categories will be removed Proposed to introduce a new levy called FTL as a contribution for social development at the rate of LKR 5 per Rs.10,000 on the total cash transactions including easy cash by banks and other financial institutions. FTL will be treated as expenditure for income tax purpose. Telecommunication Levy on internet services will be increased to 25% par with the other Telecommunication services. Duty on imported ethanol will be upwardly revised and also will levy an Excise Duty of Rs.25 per liter for imported non-potable liquor for giving further assistance to local manufacturers. Excise (Special Provisions) Duty will be introduced on the importation of beer can at the rate of Rs.10 per can of not more than 325 ml and Rs.15 per can of more than 325 ml. Introduction of Carbon Tax for all carbon fuel run motor vehicles. Extend the engine capacity based Excise Duty to Motor Cycles while reducing Excise Duty on electric cars with motor power less than 100 KW to encourage green energy consumption Tax incentive for very old cars causing many environmental problems. Any export of not less than USD 200,000 that constitute minimum of 20 vehicles will be granted an Excise Duty waiver of 50%from the payable duty for importing a motor car with CIF value not exceeding USD 50,000. The minimum fines charged on traffic offences will be increased to LKR 2,500 since most of the accidents are due to the traffic violations The motor traffic law will be amended by an imposition of a spot fine on offences which are currently be fined only by Courts. A system will be introduced for the errant motorists to pay their traffic fines through mobile phones. Bi-annual registration fee payable on lubricant agreements by the lubricant businesses will be revised to LKR 2.5 Mn or 0.75% of total invoiced sales whichever is higher with effect from 1st January Thus, presently applicable upper ceiling will be removed. 9

10 Embarkation Levy (EL) will be increased to USD 50 per passenger from which USD 35 will be remitted to the Consolidated Fund. Capital Gain Tax (CGT) will be introduced with effect from 1st April 2017 at a rate of 10%. Custom Duty (CD) on the importation of powdered milk will be reduced to Rs.100 per kilogram and will be increased from Rs.500/- to Rs.800/- per litre on the import of potable alcohol Cess on export of rubber will be increased to LKR 15 per kilogram to encourage the export of locally value added product Proposed to charge a filing fee when filing a Court case by any person in any Court due to excessive caseloads causing delays in processing cases and denying justice. Annual License Fee of LKR 20,000 will be imposed on firearms excluding Firearms used for agricultural purposes. Any person using firearms without obtaining or renewing such license will be liable for LKR 5 Mn penalty Mobile telephone operators will be given a 6 months period to convert their infrastructure to provide at least 3G coverage. Any operator who failed to implement within this period will be liable for a surcharge of Rs.100 Mn per District. All metro areas are required to be converted to 4G by 30th June Exporters will be granted a rebate of an amount equal to the 75% of the tax attributable to the excess earnings that arises as a result of an increase of 15% or more foreign currency earnings for the year of assessment 2016/17 compared to 2015/16. Import licenses will be issued at a fee to import lubricant, bitumen and gold Proposed to remove the SVAT scheme ICTA will create a common platform to facilitate online firms such as amazon, ebay, etc to be able to collect taxes on behalf of the government for transactions carried out within Sri Lanka. This will be monitored by the General Treasury. 10

11 3.0 BUDGET & THE CAPITAL MARKET 3.1 Capital Market Developments Bills, Bonds, Corporate Debt, Equity Propose to allocate LKR 75 Mn to develop an automated Commodity Exchange Designed a Capital Market Strategy, which includes an advisory board consisting of key stakeholders, who will guide the implementation of the strategy and enhance the development of the Capital Market activities Introduce a new Securities and Exchange Act during the 1st quarter of 2017, which will provide the Securities and Exchange Commission (SEC) with enhanced enforcement capacity, and greater flexibility in operations. Introduce the Demutualization Bill during the 1st quarter of Colombo Stock Exchange will then be converted to a company with shares being held by shareholders Introduce Securitizations Act during 2017 which will facilitate the diversified investment opportunities Utilize the Euroclear facility by 30th June This will improve the outreach of the Treasury bond market to foreign investors and enhance transparency Benchmark securities for Treasury bonds at 2 years, 5 years, and 10 years. This will increase the liquidity of the government bond market issuances Specialized Fund Manager Companies and Actuaries to professionally guide state institutions to maximize returns Given the significant potential for Real Estate Investment Trusts (REIT), facilitate the SEC in introducing amendments to the unit trust code Separate board for the listing of SME s with less stringent rules, which will enable them to have access to low cost capital List at least 25 Companies in the Colombo Stock Exchange CSC. Invite foreign companies to be listed in the Colombo Stock Exchange List non-strategic enterprises such as Hyatt, Grand Oriental Hotel, Waters Edge, West Coast, Manthai Salt, Hambanthota Salt and Hilton during 2017 The new firms that will list on the stock exchange in the year 2017/18 will be entitled to a grant of an amount equal to 25% of the total income tax paid by that firm for the last year prior to listing. 11

12 3.2 Budget 2017 & Listed Securities Budgetary Move Counters Affected Impact Introduce a new statute to cover pyramid schemes with strong enforcement provisions. Amendments to the Debt Recovery (Special) Provisions Act No. 2 of 1990, expanding the applicability of the Act to all LSBs and Licensed Finance Companies. Allocate LKR 3Bn to settle the claims of depositors of Golden Key. Allocate the initial capital of LKR 10Mn as equity and issue a Treasury bond to the value of LKR 10Bn with a tenor of 7 years to establish the Financial Asset Management Agency. Increase the minimum capital of Licensed Commercial Banks to LKR 20,000Mn, Licensed Specialized Banks to LKR 7,500Mn and Primary Dealers to LKR 1,500Mn. Encourage voluntary consolidation of financial institutions especially for the private banks. Allocate LKR 7,500Mn for capital infusion and amalgamate the HDFC Bank and State Mortgage and Investment Bank to create Housing Bank. Banking and Finance Banking and Finance Banking and Finance Banking and Finance Banking and Finance Banking and Finance Amalgamate Cooperative Rural Banks and Divineguma Banks and Finance companies into Bank to create a stronger rural sector micro lending SME and Micro lending focused bank. Review the restriction of 10% on single shareholder limit for banks and the restricted of 9 years on the tenure for members of the Boards of Directors. Continue the senior citizens deposit scheme which guarantees an interest of 15% for deposits up to LKR1.5 million, during Banking and Finance Banking and Finance Protect the customers, improve public confidence and safeguard the banking and finance sector stability. Improved loan recovery processes, lower non performing loan portfolios leading to improved earnings and performance. Improved customer confidence and improved sector stability. Improved Finance sector stability. Enhance the size of the banks, facilitate the fund raising from diversified sources, enhance risk taking capacities and enable banks to participate in large state and private sector projects. Customers shifting from private commercial banks to the Housing Bank. Increased competition and possbile loss of customers. Increased demand BFI equity Increased interest expenses Increase the registration fee for pawning to LKR 100,000 per unit per annum. Banking and Finance Increased cost of pawning operations Allocate LKR 500 million as seed capital for the SMEs and direct the banks to allocate at least 10% of their loan portfolio to the SME sector At least 10% of the banks' lending portfolio to be directed for Agriculture, 10% for SME, 10% for Exports, 10% for Tourism, 5% for Youth and 5% for Women. Banks are also directed to lend at least 15% of the deposits within the same area for business development. Banking and Finance Banking and Finance Increase in interest income from loans given to SMEs 50% of the lending and deposit portfolio will need to be allocated for the specific communities Impose a fee of 2% on cash transactions above LKR 5Mn. This fee is not applicable on any transaction carried out through the banking channels including through cheques, telegraphic transfers, Bank drafts, etc. Banking and Finance May promote non-cash transactions leading to increase in fee revenues from cheques, bank drafts and telegraphic transfers Loan to Value ratio (LTV) to be limited for vehicle categories as follows: Three Wheelers 25%, Motor Cars and Vans 50%, Commercial Vehicles (Lorries and Heavy Vehicles) 90%. Establish a Consumer Financial Protection Authority to protect the consumers, by improving the financial consumer rights, promote financial literacy, ensure competitiveness in the financial markets and firms thereby enhance integrity of the financial system. Allocate LKR 200Mn to bear 50% of the interest cost of financing 1,000 electric cars to replace three wheelers in Colombo district. Allocate LKR 150Mn to provide an interest subsidy of 75% to upgrade the school vans to 32 seater buses. Banking and Finance Banking and Finance Banking and Finance Motor Portfolios will need to be restructured to reduce lending for three-wheelers while increasing lending for heavy vehicles, thus transferring more funds for activities such as construction and manufacturing Increases bargaining power of consumer and further regulates banks in terms of marketing financial products Improved demand for borrowings thus increasing the interest income; Increases demand for electric vehicle supplying motor companies 12

13 Budgetary Move Counters Affected Impact Discontinue the provision of loans to members by the EPF with immediate effect. However, members may obtain loans through the many housing loan schemes designed by the government Banking and Finance For houses with an existing floor area of less than 750 Banking and Finance, square feet, commercial banks will provide a loan up to Construction and Building Material LKR 200,000, for 100,000 such houses, where the government will provide a 50% interest subsidy The National Savings Bank (NSB) together with the new Housing Bank will provide a loan facility for potential Banking and Finance, home owners at an all-inclusive rate of 7% with a tenure Construction and Building Material of 25 years; NSB will raise around LKR 370 billion to provide such loans. To further encourage the transfer to solar energy for households with a monthly electricity bill of over Rs. 2,000, encourage Banks to introduce a credit scheme to such consumers. Government will bear 50 percent interest cost on a credit limit of Rs. 150,000. Encourage the private sector companies to engage in mechanical sea sand washing in designated areas Banking Construction and Engineering More demand for loans Growth in revenues Increased competition for Private sector Banks; Increased revenue growth for construction companies Growth in interest income Access to sand while increasing sustainability Fiberglass reinforcement, which is a high quality building material, will commence production in Sri Lanka Construction and Engineering Reduce the cost of construction Introduce a Payment Guarantee Security Act Property of Sri Lanka Ports Authority (SLPA) in prime locations which will be utilized for commercial purposes. Construction and Engineering Construction and Building Material Provide adequate cover in recovering their payments Revenue growth Private sector will be invited to put up 100,000 housing units at LKR 5 million per unit for the middle income category and a further 250,000 housing units at LKR 1 Construction and Building Material million per unit for the low income category in the next 3 years, Land and the amenities will be provided free of cost by the government Special incentive package with specific tax concessions for Landmark Investments of over USD 100 million and up Construction and Building Material to USD 500 million, and investments over USD 500 million and above Remove the Cess of 25% which is applicable on prefabricated structures. Construction Extending the Katunayake Expressway up to Puttlam, the Southern Expressway from Godagama to Hambanthota which will be completed by July 2019 and the Outer Construction and Building Material Circular Road from Kadawatha to Kerewelapitiya will be completed by June Feasibility exploring the process of linking Badulla District to the Southern Expressway Commence work on the elevated highways connecting the new Kelani Bridge to Athurugiriya and the Kelani Construction and Building Material Bridge to the Port Area in Allocate LKR 1Bn to double tracking of the Polgahawela Kurunegala section and the Aluthgama Galle section. Allocate LKR 50Mn to extend the railway line from Construction and Building Material Kankesanthurai to ponnalai junction. LKR 3Bn for the extension of the Kelani Valley railway line up to Ratnapura will be undertaken on PPP basis. Expedite the construction of 50,000 houses in the North and the East and allocate LKR 5,000 million. Expedite the construction of 50,000 houses in the North and the East and allocate LKR 5,000 million. Construction and Building Material Construction and Building Material Proposed to allocate Rs. 4,500 million to develop 1,000 km of road length in rural areas. Proposed to allocate Rs. Construction and Building Material 3,000 million, for restoration, rehabilitation and desilting of 1,500 small tanks Growth in revenues Improved earnings in construction companies Improved earnings in the sector resulting from reduced taxes Improved demand leading to increased projects for construction and engineering companies and increased volumes for building material manufactureres will lead to increased revenue streams and earnings Improved demand leading to increased projects for construction and engineering companies and increased volumes for building material manufactureres will lead to increased revenue streams and earnings. Improved demand leading to increased projects for construction and engineering companies and increased volumes for building material manufactureres will lead to increased revenue streams and earnings. Faster revenue growth Faster revenue growth Improved revenue levels. 13

14 Budgetary Move Counters Affected Impact Develop a comprehensive implementation plan to upgrade each city with modern facilities. Allocated Rs. Construction and Building Material 3,000 million for this purpose. Planned to construct a new building for the National Library in Colombo. Import Export control fee of 1% on CIF price of Tea to be abolished Regional Plantation Companies (RPCs) the maximum acreage that can be held by any stand-alone company, without being allowed to consolidate will be restricted to 5,000 acres. Allocate LKR 75 million to develop an automated Commodity Exchange. Investments into the rubber sector with LKR 900 million being allocated for replanting of rubber Plantation Plantation Plantation Plantation 25,000 houses will be constructed for the plantation Plantations sector. Land and the amenities will be provided free of Construction and Building Material cost by the government Offer, 7 perches land with clear title deed to each family who are living in the Line rooms. Allow apparel companies based in Sri Lanka to invest in overseas entities involved in apparel design and manufacture up to 5% of their average export turnover of the preceding three years in any given year; Profits and income of such enterprises established overseas to be received by the investing company in Sri Lanka Any company is permitted to borrow internationally on the strength of their Balance Sheet, provided they hedge the exchange risk; Proposed to remove the restrictions imposed on such borrowings by the Non-Bank Financial Institutions (NBFI) to increase their foreign liabilities beyond 35% of the total assets in the Balance sheet. Plantations TJL and MGT Finance Companies Improved revenue levels Improve Earnings May adversely affect companies owning large amount of acres Possible increase in tea pricing through bigger bidding Promotes replanting Increased living condition for the workers; Increased demand for construction of houses Increased living condition for the workers Improved earnings arising from capacity expansions Potential to borrow at lower interest cost Sri Lanka Telecom will invest around Rs. 10 billion in SLTL iconic buildings - these buildings will be a hub for Construction and Building Material investments and economic activities Encourage establishing 4 Free Trade Zones targeting industries such as Rubber Based Products, Pharmaceuticals, Fabric Manufacturing, Mineral, Chemical and Automotive Industry, etc. in Kalutara (Bandaragama), Rathnapura (Embilipitiya), Puttlam and Vavuniya districts Establish 15 export villages, on a PPP basis focusing mainly on the thrust industries such as IT, Robotics, Fashion, High End Apparel and Boat Manufacturing Support investment relief to businesses that will invest in backward integration in apparel and textile industry which includes sizing, dyeing and finishing units Merge the Samurdhi Insurance and Cooperative Insurance Company by 30th June Plantation sector, Chemicals and Pharmaceuticals sector, Manufacturing and Motors sector TJL and MGT TJL and MGT Insurance Increase in investment income for SLTL; More business opportunities for construction and building material companies Promotes New investments Promotes to expand locally Promotes to expand locally Increased competition in the micro and SME insurance segment Repeal Rent Act Land and Property Encourages house renting Remove freehold right restrictions from the ground floor for foreigners. Allow foreigners who will be purchasing Land and property condominiums, to raise 40% of the cost from a domestic Construction and Building Material bank. However, such debt servicing should be in foreign currency. Any request including for a license, permit orpermission from any government agency (including provincial councils and local governments) is deemed to have been granted, if no reply is received by any such party without any valid reason within 10 working days of the request. All s Increased foreign ownership in condominiums and promotes construction of condominiums Reduce cost, and increase efficiency, enabling doing business with ease. Introduce laws which give Public Limited Companies freehold right of land All counters Removes confusion of land ownership by public listed companies which are partially foreign owned 14

15 Budgetary Move Counters Affected Impact 75% waiver on the PAL when importing High Tec, automated machinery and equipment Mandatory for all companies with more than 500 employees to establish Child Care Centers with the required facilities. Aim to reduce the interest cost by at least LKR90 billion. This will require domestic interest rates to decrease by at least 1.5%. Rent out government sector assets such as land, buildings, auditoriums, and canteens that are not being utilized fully to the general public and private companies for better utilization. Request Ceylon Tobacco Company to donate LKR500 million to the Presidential Fund to be utilized by the Presidential Task Force for the anti-smoking campaign. Allocate LKR 100Mn to Sri Lanka State Trading Corporation to establish a mega showroom, which will carry all household items and appliances Establishment of a Maritime Authority with the participation of both the private and public sector. Allocate LKR 100Mn to establish a Biotechnology Innovation Park which will provide facilities mainly for companies engaged in the Pharmaceutical Industry. Allocate LKR 150Mn to expand the Pharmaceutical Labs. Allocate LKR 500Mn to provide an interest subsidy for hotels that were in operation for over 10 years on the expenditure incurred to refurbish and upgrade the facilities to be in line with the modern requirements. Government will provide a common technology platform for the country s lodging businesses and impose taxes as applicable to the formal sector and impose a 0.5% Tourism Development Levy on such businesses which has a revenue of less than LKR 12Mn per annum. All counters All s All s All s CTC ABAN, SINS, SHL, BRWN TESS Chemical and Pharmaceutical Hotel and Travel Hotel and Travel Favourable impact on capital expenditure Increased staff welfare costs Reduced interest cost Access to cheaper building facilities Increase of cost to the Company Increased competition and possbile loss of customers leading to decline in revenue and earnings. Improved regulatory framework to safeguard the sector. More low cost drugs for pharmaceutical companies, possibly increasing turnover Promotes refurbishment of old hotels Higher cost for online bookings for hotels and travel agencies Tourist Promotional Bureau to organize a cultural show to be held every day except on religious holidays in the main tourist cities utilizing the Tourism Development Fund. LKR 1Bn to construction of a MICE Convention Centre in Colombo with a seating capacity of 5,000. Grant Custom duty waivers on Surf Boards, Quad Bikes, Leisure Boats, and Jet Skis. Promote medical tourism by ensuring a strong regulatory and monitoring mechanism with respect to maintaining quality and inclusion of Ayurvedic medicine in insurance cover. Hotel and Travel sector Hotel and Travel Hotel and Travel Hotel and Travel, Hospital and Insurance Increase tourist attractions and promotes more tourism Competition for existing hotels with MICE capacity Promotes tourism entertainment leading to more tourists Higher demand for rooms Terminating minimum room rate regime by 2018 Hotel and Travel Impact will depend on the type of hotel Allocate LKR 50Mn to introduce a domestic airline which will include the Sri Lanka Air Force, the hotel industry, travel agents and other private sector stakeholders. Hotel and Travel Encourages higher tourism for resort hotels Augment the infrastructure such as the proposed cross country pipeline and improving storage facilities at the Ceylon Petroleum Corporation, acquire and develop the regional bulk depot at Kankasanthurai ensuring fuel security of the Northern Province. Similarly CPC together with the Lanka Indian Oil Company (LIOC) will rehabilitate and develop the Upper Oil Tank farm at Trincomalee. Form a Company on PPP which will own the Telecommunication Towers. LIOC Telecommunications Improved capacity levels enabling to cater the increased demands will lead to increased revenue and earnings. Reduction in capital expenditure and operational cost will lead to an increase in earnings. Enjoy the benefits of synergies that will arise from the sharing of assets, and the expertise that will be developed. 15

16 Budgetary Move Counters Affected Impact Introduce an insurance scheme for all school going children from the age of 5-19,covering 4.5 milion students. Allocate LKR 500 million to promote Aquaculture Industry Zones in Hambanthota, Mannar and Batticaloa Insurance TESS Increase Gross Written Premiums Opportunity for local manufacturers to improve export revenues Training for 10,000 youth in the Apparel, Health Care, Hospitality and the Construction industries who, at the end of the training period, will be recruited to the relevant industry - government will provide a stipend for each trainee amounting to Rs. 10,000 per month for 3 months Apparel, Health Care, Hospitality and the Construction industries Increase productivity and earnings of the relevant sector 16

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