JVP’s myopic Budget criticisms trashed – Part II
Posted on December 5th, 2020

By : A.A.M.NIZAM – MATARA

Despite arrogant and nincompoop JVP leader the alleged Goni-Billa and Ranil/Sajith’s dhobi and stooge and his cohorts’ myopic criticisms of 2021 budget and thereby displaying their impotent nature on budgets and financial matters the government has received many accolades from business magnates and professionals in the IT and digital field nd have expressed their commitment and capability and willingness to achieve the anticipated goals of the Budget.  Their valid views and opinions continue:

Before proceeding further, I would like to divert attention to the matter confirming that dispelling the denial made by Anura Kumara Dissanayak(AKD) about being a member of the committee guiding the FCID unit to institute political victimization, parliamentarian Mohammed Muzammil presented the approved Cabinet Paper submitted by Ranil Wickremasinghe on 21st January, 2015 naming alleged Goni Billa AKD as a member of the said committee.  MP Vijitha Herath who participated in the relevant Hiru TV programme remained (bakam nilaagene) silent without any comment.  Text of the relevant Cabinet Paper will be included in the book Ravages of 2015” being written by me in the Chapter relating to JVP servility to Yamapalana.

Hayleys Group Executive Director Sarath Ganegoda pointed out that there is still significant potential even in traditional sectors and room for growth across all sectors of business. He said exports have fared well despite the challenges of COVID-19 are fuelling sectors such as hospitality which have been greatly impacted. There is a global shift in supply chains and as people look at new destinations for manufacturing, Sri Lanka must take advantage of them, he added. 

However, there are a few impediments, especially for manufacturing facilities outside zones due to the lack of a comprehensive plan by authorities, he noted. As a result, Hayleys has decided going forward all its manufacturing operations will be restricted to industrial zones. But there is a lack of facilities with adequate water supplies and affluent treatment and disposal, he pointed out, with Katunayake and Biyagama the only areas with adequate industrial water and treatments facilities. We are addressing all these with authorities, and I hope these could be fast tracked. We welcome the low interest rate regime and these are encouraging for investments,” he noted. 

Ganegoda also remarked on the need to enhance export credit insurance, as what was said in the Budget is very vague. It’s a thorny issue,” he said and with new customers around the globe it becomes increasingly difficult and these must be removed. 

Commenting on the Government’s proposal to increase wages of estate workers to Rs. 1,000 a day, Ganegoda averred: I don’t see a gap between what Government wants to achieve and what we want. We are more than happy to do so, and they should earn more than Rs. 1,000 in today’s context. If we are talking about getting out of this middle-income trap and all that, what is this $ 5.5 a day and they should earn more? The issue is not that. The issue is cost per kilogramme for the industry. We will have to balance this. We will support the Government; we will talk to them and we will have to find a mechanism to balance both sides and have a win-win. If you look at productivity, Sri Lanka is 18kg per plucker per day, whereas Kenya is 60kg and India is 36kg per day. So, if you could agree on a mechanism to drive productivity and if you focus from our side on cost per kilogramme for plucked leaves, even if they were to get Rs. 2,000 we have no qualm and they should earn that. Without reaching productivity and you just make it a wage, then there are problems.” 

Budget benefits through ICTs

This Government places great emphasis on technology, specifically on Information and Communication Technology (ICT). Amidst the Budget debate, a new Ministry of Technology grouping together ICT related agencies and companies was created with the President as Minister. The Secretary has yet to be named but the newly-absolved Senior Advisor to the President, Lalith Weeratunga, is likely to play a significant role. 

A budget speech is an important indicator of Government priorities. Talk is cheap, but talk backed up by financial commitment is less cheap. That is why budgets are taken seriously. 

What are the likely benefits from the perspective of the people? What investments will be made, and what barriers will be removed by the Government to facilitate greater access to ICTs? What taxes will be raised from ICT services used by the people and from companies in the sector? What jobs will be created in the software and IT enabled services sector? 

According to the Sinhala version of the speech, Rs. 15 million from the Telecommunication Development Fund (TDF) is to be spent on pushing out coverage of 4G and fibre. When we last looked, the TDF had Rs. 69 billion unspent (this was for 2015 and money kept being collected and not spent; so, the total is likely to be higher). Was the Government committing a maximum of 0.02% of money collected from incoming and outgoing international calls and lying unspent? 
o, the English version was checked. It appears the actual amount may be Rs. 15 billion; the Sinhala version may be a typo. Even that is a maximum of 21% of funds lying fallow. But because they have made it complicated, starting with a low number is good. Half the money must be spent on local suppliers; import restrictions are in place making quick deployment of vital equipment that is not locally manufactured unlikely. If half the money is spent within a year, it will be praiseworthy.

The Budget speech commits to helping timely construction of towers and the laying of cables. This proposal is far superior to the (luckily unimplemented) proposals in previous budgets which imposed punitive taxes on towers and proposed all sorts of complicated structures for building and managing towers. 

Because most land in this country is owned by the State, it is a good thing to make them available for telecom operators. One only hopes that the proposal will be implemented and that we will not be talking about this in the future tense next year.

For long, telecom operators have served as tax collectors. Every telecom bill includes taxes that are collected and handed over to the State. At present, for every Rs. 100 we pay for voice calls, we pay an additional Rs. 37.7 in taxes to the State; for every Rs. 100 we spend on data, we give Rs. 19.7 to the State in taxes. The odd numbers are because these are multiple taxes layered on top of each other. In the Ravi Karunanayake years it was worse, but the rates were lowered in 2018.

The Budget speech says that a single tax (possibly with different rates for different items) will replace the current tax-on-tax regime for alcohol, cigarettes, telecommunication, betting, gaming and vehicles by 1 January 2021. It is disappointing that telecom is lumped together with all sorts of demerit goods that the State taxes excessively to discourage consumption. It is puzzling because these kinds of changes require legislation and usually take effect in April, after the Budget is approved and Finance Act amendments are approved by Parliament. 

The quantum of the single tax for telecom services is not specified. But it may be inferred that end users will pay more. The Government is expecting to increase the revenues from taxes on goods and services (of which the above-mentioned categories contribute around 50%) by 30%. It is unlikely that such a big increase can be achieved by keeping the burden on the end-user at current levels or lower.

Justification exists for lowering the taxes levied on data services in these pandemic times. It is illogical to make a big fuss about extending 4G and fibre connectivity to every nook and cranny of the country and then make data plans unaffordable by excessive taxation. But in the current circumstances, no one should be advocating for reducing State revenue. 

The Budget promises to exempt earnings from both domestic and foreign sources by those engaged in businesses in software and IT enabled services from income taxes. The foreign earnings exemption has been in place for persons directly receiving payments from foreign sources if they are deposited in local accounts and declared. What this appears to allow is the exemption from taxes of all software and IT enabled service firms, which is rather radical. The test will be whether the definitions are clear, and implementation is efficient. Again, a conclusion depends on the language of the amendments. 

The larger question is whether anyone has modeled the revenue loss from exempting most people in a sunrise industry from income tax. Whatever the loss is in 2021, it will be larger in 2022 and so on. Is there a real need to exempt software engineers from income tax? 

The Government has allocated the rather large sum of Rs. 10 billion for setting up five fully-fledged plug and play Techno Parks in Galle, Kurunegala, Anuradhapura, Kandy and Batticaloa Districts”. Previous budgets included such allocations for such parks by slightly different names, but none were built. It appears the liking for these things comes from officials rather than politicians.

The Malambe IT Zone was established under President Kumaratunga in the 1990s. It was not easy to attract companies to that location which was considered too remote. We could not even persuade HSBC to locate its regional centre, which is not a hive of creativity, in Malambe. They insisted on the present location on Parliament Road. 

The value of the Malambe IT Zone has greatly increased now with the Athurugiriya Interchange and would have skyrocketed had the now aborted LRT been completed, but most of the land is already occupied, not necessarily by IT firms. Still the early difficulties illustrate the challenges of setting up technology parks. 

They are fundamentally different from the industrial parks our officials are familiar with. The companies that locate in such parks place a premium on attracting and holding employees. The people who work in software firms and creative industries do not particularly like suburban or rural locations; they do not want to spend hours commuting. They like the benefits of agglomeration. That is why Silicon Valley emerged around Stanford University and why Bangalore and Gurgaon, with all their shortcomings, emerged as centres of IT. Coffee shops and bars play an important role in the success of IT parks.

Artificially creating techno parks in the middle of nowhere is a recipe for failure. Government officials are incapable of designing and managing such parks. They should commission studies of what has worked here and abroad and encourage private firms to build and manage technology parks in locations that will attract companies and employees. 

On what basis were five districts picked for locating the parks? It would be useful to understand what happened to the tender that was floated by the Export Development Board in 2019 seeking to identify a suitable building and operator for a tech park in Jaffna. Just because something was started under a different government, it should not be abandoned. By most measures, including the quality of the educational system and the success of initiatives such as Yarl IT Hub and Uki Coding School, Jaffna is an obvious candidate, though much remains to be done on the leisure and entertainment side. 

In conclusion with President Gotabhaya Rajapakdsa’s ardent desire to make Sri Lanka a digital technology nation, expeditious efforts are being initiated through 2021 Budget to achieve the President’s objectives. 

Let us look at how India became an Information Technology giant within a short period.  Information Technology in India is an industry consisting of two major components: IT services and business process outsourcing (BPO). The sector has increased its contribution to India’s GDP from 1.2% in 1998 to 7.7% in 2017. The sector aggregated revenues of US$180 billion in 2019, with export revenue standing at US$99 billion and domestic revenue at US$48 billion, growing by over 13%. As of 2020, India’s IT workforce accounts for 4.36 million employees. The United States accounts for two-thirds of India’s IT services exports

India’s IT Services industry was born in Mumbai in 1967 with the creation of Tata Consultancy Services who in 1977 partnered with Burroughs which began India’s export of IT services. The first software export zone, SEEPZ – the precursor to the modern-day IT park – was established in Mumbai in 1973. More than 80 percent of the country’s software exports were from SEEPZ in the 1980s.

Within 90 days of its establishment, the Task Force produced an extensive background report on the state of technology in India and an IT Action Plan with 108 recommendations. The Task Force could act quickly because it built upon the experience and frustrations of state governments, central government agencies, universities, and the software industry. Much of what it proposed was also consistent with the thinking and recommendations of international bodies like the World Trade Organization (WTO), International Telecommunications Union (ITU), and World Bank. In addition, the Task Force incorporated the experiences of Singapore and other nations, which implemented similar programs. It was less a task of invention than of sparking action on a consensus that had already evolved within the networking community and government.

In 1991 the Department of Electronics creating a corporation called Software Technology Parks of India (STPI) that, being owned by the government, could provide VSAT communications without breaching its monopoly. STPI set up software technology parks in different cities, each of which provided satellite links to be used by firms; the local link was a wireless radio link. In 1993 the government began to allow individual companies their own dedicated links, which allowed work done in India to be transmitted abroad directly. Indian firms soon convinced their American customers that a satellite link was as reliable as a team of programmers working in the clients’ office.

A joint EU-India group of scholars was formed on 23 November 2001 to further promote joint research and development. On 25 June 2002, India and the European Union agreed to bilateral cooperation in the field of science and technology. India holds observer status at CERN, while a joint India-EU Software Education and Development Center was located in Bangalore.

In the contemporary world economy, India is the largest exporter of IT. Exports dominate the Indian IT industry and constitute about 79% of the industry’s total revenue. However, the domestic market is also significant, with robust revenue growth. The industry’s share of total Indian exports (merchandise plus services) increased from less than 4% in FY1998 to about 25% in FY2012. The technologically-inclined services sector in India accounts for 40% of the country’s GDP and 30% of export earnings as of 2006, while employing only 25% of its workforce. The “Top Five Indian IT Services Providers” are Tata Consultancy Services, Infosys, Wipro, Tech Mahindra, and HCL Technologies.

Major information technology hubs[edit]

Bengaluru is known as the “Silicon Valley of India”.

Hyderabad – known for the HITEC City or Cyberabad – is a major global IT hub, and the largest bioinformatics hub in India. Hyderabad has emerged as the second largest city in the country for software exports beating competitors Chennai and Pune. As of 2020, the IT exports from Hyderabad was US$15 billion and  the city houses 1500 IT and ITES companies that provide 582,126 employment. Notable tech and pharma parks are HITEC City, Genome Valley, and Hyderabad Pharma City

Chandigarh is also one of the growing international IT services and outsourcing exporters. The next upcoming tech park will be world trade center.

Kolkata is the financial and business hub of Eastern India. The metro city has seen a significant rise in IT services. In August 2018, the West Bengal Government announced that 200 acres of land in Rajarhat Newtown will be used for the development of Bengal Silicon Valley, similar to the California Silicon Valley in San Francisco, USA. The main intention of this project is to create a business-friendly environment for IT companies to set up their business in the city. Major IT Parks include Sector V, DLF 1,2,Gitanjali Park SEZ, Ecospace SEZ.

As of 2012[update], Chennai was India’s Largest exporter of information technology (IT) and business process outsourcing (BPO) services. Tidel Park in Chennai was billed as Asia’s largest IT park when it was built. Notable tech parks are International Tech Park, DLF SEZ, Mahindra World City, SIPCOT IT Park, Olympia Tech Park and Ramanujan IT City. City has an expressway called as IT expressway and a preferred location for IT industries. Major software companies have their offices set up here, with some of them making Chennai their largest base

The Rajiv Gandhi Infotech Park in Hinjawadi is a US$8.9 billion project by the Maharashtra Industrial Development Corporation (MIDC). The IT Park encompasses an area of about 2,800 acres and is home to over 800 IT companies of all sizes. Besides Hinjawadi, IT companies are also located at Magarpatta, Kharadi and several other parts of the city. As of 2017, the IT sector employs more than 300,000 people.

In Thiruvananthapuram, Technopark was established for the development of electronics and information technology in the State. It is India‘s first industrial park dedicated to electronics, software, and IT ventures. Started 1995, the campus at Thiruvananthapuram city covers an area the 330 acres campus with 4,000,000 sq ft of built-up space available currently and another 2,000,000 more sq ft of built up space coming up, is now home to over 260 companies. Over 35,000 IT professionals are working here.

The Indian experiences indicate that with the admirable initiatives taken in the 2021 budget to establish 5 IT parks covering all areas of Sri Lanka our future generations will have the opportunity of becoming commendable world leaders. (end).

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