Professionals Quash chicken-brained Mangala’s Budget criticisms Part II
Posted on November 27th, 2020

By : A.A.M.NIZAM – MATARA.

Unlike the olden days the modern budgets need to concentrate more on the development of digital and the distance learning facilities and only by which our future generations will be capable to be competitive to stand shoulder to shoulder with the people of other countries.   Fotnnately we have elected a President who has a wide knowledge on this subject and his vision is to enhance IT and digital facilities to cover all aspects of life in this country.  Accordingly the Prime Minister has performed his task very well in presenting his budget giving more preference  to the development of the IT sector, which has received much accolades from all those in the modern IT world.  Their views and opinions continue:

Indirect boost to IT/BPM

The Budget aims to create digital governance using Information Technology and the establishment of an international e-commerce and e-payment systems, the high-speed data exchange system and the related mobile network systems are investment priorities”. This would offer many opportunities for the IT/BPM industry to be partners.

The proposed techno parks could be a boost to the electronics industry as well as businesses engaged in the Internet of Things (IoT).

It is proposed to provide loans of Rs. 500,000 at an interest rate of 4% as start-up capital to support the young men and women, who start their own businesses on the successful completion of vocational education. This loan scheme will have a grace period of one year for both principal and interest, with a further four years to settle the loan. This will help encourage entrepreneurship which will benefit the IT/BPM industry as well any business today has some level of IT/BPM involvement.

Summary

This appears to be a dream budget for the IT/BPM industry.

BOI to target more strategic investments with tremendous opportunities provided by Budget

The Board of Investment of Sri Lanka (BOI) said it will target more strategic investments following the tremendous opportunities provided by 2021 Budget.


BOI trusts that incentives are part of the landscape of the investment strategy to attract sustainable investments, as they are often a decisive factor in investment decision-making. 

Combined with the more obvious hard infrastructure offerings, locational benefits, sound legal framework and access to talent pools, investment incentives are another important piece of the puzzle to attract investments, which could also open doors to other economic benefits including technology clusters, skills development and linkage to global value chains,” BOI Director General Sanjaya Mohottala said. He emphasized With the incentives offered to investors by the 2021 Budget along with the endorsement by the Government for a consistent policy environment, has fulfilled the aspirations of BOI as the national investment promotion agency,”

He said Now BOI has much to play with when it comes to enticing investors with discretionary dollars and much to gain by attracting top-notch investors to establish in the country, which would provide anticipated economic and social benefits,”

He has pointed out that some of the new openings for investments introduced in the 2021 Budget include five fully-fledged plug and play Techno Parks in Galle, Kurunegala, Anuradhapura, Kandy and Batticaloa districts; investments in the pharmaceutical sector (products and medical devices) in the dedicated state-of-the-art investment zone in Hambantota; investments in textile manufacturing in the textile zone in Eravur; Investments in floating solar plants and Investment opportunities under the SDP Act.

Apart from those, Mohottala said an array of benefits, including exemptions from Customs Duty, VAT, PAL, CESS, etc., are available for the right investment, depending on the sector of investment and its market orientation. 

Furthermore, benefits continued under the Inland Revenue Act No.24 of 2017: CIT exemptions for farming including agriculture, livestock and fish farming with effect from 1 April 2019; CIT exemption for Information Technology and enabling services, with effect from 1 January; CIT exemption for income earned from services rendered to persons outside Sri Lanka including foreign sourced earnings in foreign currency; Dividend Tax exemption for dividends paid by a resident company to any non-resident person and dividends distributed by Commercial hub Enterprises with effect from 1 January; and CIT exemption for Income derived by any non-resident person from laboratory services or standards certification services, with effect from 1 January.

Exemptions continued under VAT (Amendments to VAT Act No.14 of 2002) include: sale of condominium housing units from VAT with effect from 1 December 2019; IT and enabling services with effect from 1 January; reduced VAT of 8% other than financial services with effect from 1 December 2019; quantities supplied/donated of health protective equipment and similar products by export-oriented BOI companies to the Ministry of Health and Indigenous Medical Services, Department of Health Services, Tri-Forces and Police on their request; and reduction of piece-based VAT rate applicable on domestic sale of certain garments by the export-oriented BOI companies from Rs. 100 to Rs. 25, he said.

CSE welcomes Budget 2021 directed at developing the capital market

The Colombo Stock Exchange (CSE) welcomed the progressive capital market related proposals presented in the 2021 Budget Proposals.

It said  long-term sustainable measures have been proposed to encourage companies to list on the CSE, encourage savings and investments among Sri Lankan citizens and improve the attractiveness of Real Estate Investment Trust (REITs) through tax concessions.

As a measure of promoting new listings on CSE a 50% tax concession for the years 2021/2022 has been proposed to be granted for companies listing on the CSE before 31 December 2021 and to maintain a corporate tax rate of 14 percent for the subsequent three years upon listing.

Stock market investment will continue to be exempted from Capital Gains Tax and as an additional measure to encourage stock market investment, the Government has proposed to include investments made in shares of listed companies incurred up to Rs.100,000 per month as deductible expenditures in the calculation of personal income tax.

In a measure that would largely improve the attractiveness of REITs investment, the government has proposed to exempt such investments from capital gains tax and dividends free from income tax. The proposal further seeks to reduce the Stamp Duty applicable to real estate transaction associated with REITs to 0.75 percent (from the currently applicable 4% for property transactions). The CSE, working with the Securities and Exchange Commission of Sri Lanka, introduced REITs as a new investment product on the CSE earlier this year.

CSE Chairman Dumith Fernando commenting on the proposals stated CSE is pleased to learn of these progressive proposals and we applaud the commitment of the Sri Lankan government to promote capital market development in the country. The tax concessions proposed to draw in stock market investments and encourage companies to explore a public listing will most certainly complement our efforts to develop a larger listed company base.

CSE CEO Rajeeva Bandaranaike stated The tax concession offered to companies listing on CSE by 2021 will offer financial benefits to companies and extra impetus to pursue a listing. This proposal offers vital policy support to expedite new listings in the market and greatly complements measures taken by CSE to expand listing rules to attract more companies and streamline the listing process. We believe CSE as a result is well-placed to attract new listings in 2021.”

Apparel industry hailed the Budget expressing confidence of recovery from 2021

The Joint Apparel Association Forum (JAAF) expressed confidence in revival of the country’s biggest export sector next year onwards aided by policy direction and support outlined in the Budget 2021 as well as recovery in key markets post-COVID-19. 

We made submissions to the Government and most of our proposals have been incorporated in the Budget 2021. We are pleased to see such policy direction at this critical time for the export oriented industries,” JAAF Secretary General Tuli Cooray told the Daily FT.

Although the industry took a harsh blow from COVID-19 which wiped out close to $ 1 billion in turnover, Cooray said resilience has always been the cornerstone for the apparel industry.

History has amply proved that Sri Lanka is a resilient nation and the apparel industry remains to be a major contributor. At the moment we are not thinking of revisiting our targets, but we all know that it has been a very challenging year for the entire world. In that context, we will probably see a decline in our total exports by 25% to 30% this year just over $ 4 billion. But it is with great confidence I say the apparel sector will come out of this crisis stronger than before,” he said.

Sri Lanka last year earned $ 5.3 billion from apparel exports, an increase of 5.1% from 2018. Prior to the COVID-19 pandemic the industry originally expected a 6% increase in exports for 2020.
Export earnings from apparel and textiles in October declined by 18.93 % to $ 356.52 million and by 21% to $ 3.6 billion in the first 10 months of 2020 from a year earlier. Despite the decline in the sector, earnings from exports of other textiles increased by 43.92% in October 2020 in comparison to October 2019,vthe JAAF spokesman said.

Earnings from export of Personal Protective Equipment (PPE) related products increased by 46 % to $ 731.63 million in January to October. The strong performance was mainly due to the increased exports of other made-up articles (HS 630790) and articles of apparel and clothing accessories of plastics (HS 392620).

Cooray said it was very challenging as the industry markets remain closed, with the world still continuing to battle the impact of the virus. Many countries such as India, China, Russia and the US are having very protective policies and not open for trade,” he added.

Noting that the apparel industry is continuously looking for access to new markets, he highlighted that they were exploring opportunities to open up trade dialogue with all existing and emerging markets. The UK, Japan and the US are currently reviewing unilateral trade agreements and we are open to explore such opportunities given the current circumstances,” he said.

Boost for fabric manufacturing

Cooray also commended the timely move to establish fabric processing park in Eravur, noting that it is a reflection of the Government’s confidence in the apparel industry.

The 2021 Budget announced tax concessions up to a maximum of 10 years under the Strategic Development Law for over $ 10 million investment in setting up fabric plants.

We stand firm even in the current climate that it is our intention to continue to be a strong player in the global apparel sourcing world. The establishment of the Eravur Fabric Processing Park will help reduce the imports of fabric as apparel manufacturers would be able to replace a part of their imported fabrics with fabric sourced locally,” he said.

According to him, there are currently seven textile mills manufacturing fabric for the export-oriented sector and these mills are capable of producing the finest quality of fabrics where the daily output is around 175 MT. 

This is a vital component in the building the industry value addition to over 52% even after accounting for the yarn imports of the local mills. Sales from these seven fabric mills to the BOI registered apparel exporting companies amounted $ 499 million last year. In 2019, Sri Lanka imported 255,437 MT of fabric both for the export-oriented apparel manufacturers and for consumption in the local market. The import bill for this fabric came to $ 2.2 billion.

Worker saety

With regards to work at apparel factories, he said operations continue with strict health guidelines as the industry remains a critical contributor to the sustainability of the economy. We are a part of the society. 

Our workers’ health and safety is our prime focus, as all our businesses rely on them. Despite the heavy losses the industry incurred due to COVID-19, we have not neglected the welfare and job security of our workforce. We now incur an additional heavy cost for the regular PCR tests, lodging facilities, transport because their lives matter. Apparel industry largest overall employer,” he said.

Entirely privately owned and operated, the apparel industry have successfully utilised the opportunities in the international market to evolve beyond traditional exports and tailoring designs to provide sophisticated and creative solutions through fashion BPO services, research, development and innovation centres. Around 300 garment factories employ 990,000 and over one million people are indirectly dependent or employed.

Budget endorses our Vision – ICTA

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Multiple proposals of ‘Vision 2024 for ICTA: A digitally transformed Sri Lanka’ were echoed in the Budget 2021 proposals, the maiden of the present Government, it was observed BT icta.

In January 2021, the current administration has charged the Information and Communication Technology Agency of Sri Lanka (ICTA) with implementing a detailed roadmap in line with President Gotabaya Rajapaksa’s vision to establish a digitally inclusive Sri Lanka, with a citizen-centric digital Government for the convenience of every Sri Lankan. The Budget 2021 proposals further endorses the initiatives within their road map.

 Tech-based society and a smart nation

President Gotabaya Rajapaksa has given special attention to enhance digital governance using Information Technology as a tool to simplify Government mechanisms as well as market structures and processes ensuring efficient and people-focused service delivery and exchange of knowledge, says the Budget 2021 proposals. 

Establishment of an international e-commerce and e-payment systems, the high speed data exchange system and the related mobile network systems are investment priorities. It also emphasised the establishment of new laws and organisational structures in relation to data protection, cyber security and intellectual property rights. 

The aim of this is to convert Sri Lankan economy as a technology-based entrepreneurial economy by expanding entrepreneurial development, technological infrastructure and related services to enable enhancement of the contribution of the technology sector for exports and its contribution for knowledge and professional services of the national economy.

Digital government, which makes up a large part of the ICTA’s mandate, would empower citizens of Sri Lanka, allowing easy access to information that would help them in decision making, ensure participation in governance at various levels, allow automated services for public welfare and streamline government functions while ensuring transparency.

ICTA will also be the catalyst that drives Sri Lanka’s digital economy, which will facilitate industry expansion and increased foreign direct investment, while creating opportunity for startup innovation and entrepreneurship through capacity building and tech diffusion. Preferred business and employment opportunities would open up for local companies and the country’s technology industry would move steadily towards the goal of becoming a $ 3 billion export earner by 2024.

Though not explicitly mentioned in the Budget proposals, the other important pillar is digital society. The ultimate goal of digital transformation is achieving a digital society. Both digital government and digital economy must be citizen focused and citizen centred – with due recognition given to the public. 

ICTA recognises this need in its design of the ‘Vision 2024 for ICTA: A digitally transformed Sri Lanka’ roadmap that is entirely built around the citizens of the country, be they rich or poor, urban or rural and educated or not. The ultimate goal of ICTA’s vision is to make even the ‘poorest of the poor’ sections of society benefit from ICTs in uplifting their living standards. 

Tech parks 

The Budget 2021 also proposes creating a techno-entrepreneur-led economy that will contribute to increase of exports and foreign earnings from the technology field and broaden the knowledge and professional services to the national economy within the coming two years. It is expected that the establishment of technology-centred investments and allied service industries will transform into high income employment opportunities for Sri Lankan youth. It is envisaged to establish five fully-fledged plug and play techno parks in Galle, Kurunegala, Anuradhapura, Kandy and Batticaloa Districts. A sum of Rs. 10 billion has been allocated to develop these techno parks as eco-friendly new cities connected to the expressway network and other infrastructure facilities. 

Distance education

As the first step towards educational reforms, according to the Budget proposals, there is a requirement to formalise learning methodologies within schools, and the need to expand the provision of internet facilities to schools as well. It is also necessary to update the E-Thaksalawa learning portal, created by Ministry of Education with inputs from ICTA, along with the strengthening of the provincial IT education centres.To minimise the difficulties faced by students in rural and non ‘national schools’, due to shortage of teachers, and ensure the provision of continuous school education in the face of the COVID-19 epidemic, the ‘Guru Gedara’ education channel should be made available to all students by providing television sets to schools in difficult areas. It is proposed to allocate Rs. 3 billion to convert the syllabi in line with the contemporary requirements, regulation of teacher education and training, and examination procedures are planned to be regulated under a national education policy.

With the inevitable disturbances to normal life during the COVID-19 situation all over the country, one of the biggest challenges to educators was to compensate the lost education by the students. With no means for students to meet their teachers face-to-face, the only possible solution was through educating them by distant learning modes. The Ministry of Education came forward with E-Thaksalawa (http://e-thaksalawa.moe.gov.lk) the official E-learning portal for schools with learning content from Grade 1 to Grade 13 which has been made accessible to all students from March 2020, without data charges with the support of all operators enabling school children to study from. 

ICTA also facilitated Ministry of Education by introducing how distance learning can be adopted with live video conferencing in teaching and learning process for school children with its own newly-introduced video conferencing too, meet.gov.lk. What the Budget proposes is the continuation of the same for future in the ‘Living with COVID-19’ situation expected for a relatively prolonged period now. 

 Expanding tech education opportunities

The Budget has also given priority to strengthening the island-wide network of new technological universities, by modernising the technical colleges to be attractive to Sri Lankan youth, under the ‘one TVET’ concept within a formal regulatory framework, by converting these institutes into degree awarding entities in parallel to the expansion of opportunities for university education.

Capacity building activities like these are the key in achieving the goal of making a Smart nation. ICTA is taking steps to build an empowered workforce who can join the industry at multiple levels. ICTA will ensure the competency and employability of the workforce through programs such as vocational training, foundation and conversion programs and social education, apart from the traditional tertiary, higher, professional and postgraduate education. Social education will also play a key role in developing intelligent citizens with the skills to use citizen services.

 Electronic identity

The Budget also allocates Rs. 3 billion for the new digital identity project to be spearheaded by ICTA jointly with Department of Registration of Persons. Internationally governments are increasingly adopting the strategy of having a unique digital identity for their citizens with the objective of improving service quality and efficiency. That also drives financial and social inclusion by providing citizens access to citizen services and benefits of healthcare, education, and other government programs. Government of Sri Lanka has given priority to a national level program for the establishment of a Unique Digital Identity framework for the country. 

ICTA has developed its digital government and economy frameworks with this aim in mind. The objective is to digitise the service delivery from the Government to citizens, creating nationwide digital service delivery infrastructure that can be utilised digital public utilities serving and bridging all the sectors of the economy. UDI together with the National Data and Interoperability Platform (NDIIP) forms the nucleus of the digital economy and Government frameworks.

 Healthcare

The Budget also allocates Rs. 100 million to introduce electronic medical records at more Government hospitals. This is an extension to a project ICTA has been engaged in for the last few years. The Digital Health Project is a collaborative project being implemented by Ministry of Health and Indigenous Medical Services and ICT Agency of Sri Lanka. The project supported 49 Government hospitals in implementing electronic medical records systems. 

A National Project Steering Committee, Provincial Project Steering Committees and Hospital Steering Committees were formed with the representatives of Ministry of Health, Provincial Departments of Health Services and ICTA to direct/guide the project implementation at different levels. The project provided computer hardware, software, network and training for the selected hospitals to establish electronic medical records systems.

 Nurturing tech startups

The Budget proposals also include providing loans of Rs. 500,000 at an interest rate of, as low as, 4% as start-up capital to support the youth, who start their own businesses on the successful completion of vocational education. This loan will have a grace period of one year for both principal and interest, with a further four years to settle the loan.

Accordingly, these entrepreneurs will be facilitated to receive the opportunity to pay an instalment together with interest less than Rs. 12,000. In order to ascertain that the said loans are invested on the approved business, an annual commitment fee of 0.25% will be charged for follow up and extension services. It is proposed to give tax exemptions of five years to these businesses and the cost of funds of funds provided for such start-up capital, provided by banks and finance agencies as deductible expenditure in the calculation of taxes.

ICTA, over a long period, has been working assisting start-ups to establish themselves in the local ecosystem. Startup Sri Lanka was an initiative by ICTA with the former Ministry and startup community. Its mission is to transform Sri Lanka through technology and entrepreneurship. ICTA is working to support the tech community and accelerate the growth of Sri Lankan startups with the belief that strong home-grown startups and freelance community is vital to the future growth of Sri Lankan jobs and wealth. 

ICTA’s efforts are focused on trying to get the big picture right for Sri Lankan startups and freelancers – improving the regulatory environment, building a case for the right sort of Government support for a fast-growing sector, and increasing public awareness of the impact of tech startups and freelancers across the country. ICTA works with startups, freelancers and investors to help around the country get the settings right to create successful startup ecosystems.

ICTA recently worked together with Ministry of Finance in establishing guidelines for State organisations to exclusively procure their software and hardware requirements less than Rs. 2 million from local startups We need to end the era of sending our mothers, sisters and daughters as domestic workers, and sending our brothers and children as unskilled workers, drivers, room boys and white color workers to foreign countries and enhance our future generations as highly digitasl/IT knowledge based personalities who can become a beacon to the future world. The Budget has done its part very well and it is now the student population to grab the opportunities it has presented.

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