Deputy Chairperson
Group Finance Director
John Keells Holdings

Deputy Chairperson
Group Finance Director
John Keells Holdings

The big picture

The fiscal measures proposed in the interim budget are necessary to rebuild Sri Lanka’s macroeconomic fundamentals – they’re long overdue to systematically overcome the current economic crisis.

The plethora of progressive reforms including enhancing the independence of the Central Bank of Sri Lanka and SOE reforms – to name a few – are encouraging, together with the steps taken to remove subsidies on power, energy and other utilities, which is a significant step towards reducing the budgetary burden.

The key success factor will be the implementation of these reforms, which has been a challenge for successive governments. The extensive list of reforms may pose challenges for their implementation – particularly given the multitude of reforms and bandwidth required to execute them. A more targeted list will increase the likelihood of successful implementation of meaningful reforms.

The revenue measures listed in the interim budget lack adequate clarity in terms of the practicality and reality of achieving such targets.

While revenue enhancing measures are imperative, there could have been more focus on controlling expenditure as well, which is required to bridge the deficit; and as importantly, from a messaging perspective.

Removal of tax holidays

In the long term, the removal of tax holidays on new projects is a step in the right direction. From an investor perspective, tax holidays are not the foremost of requirements and taxes may not be a substantial expense item since taxes are in any case levied on profits.

Investors seek consistency in economic, fiscal and tax policies together with many other aspects of the ease of doing business. Typically, tax holidays have prevailed in Sri Lanka as a sweetener for investors to compensate for the lack of other fundamental requirements such as economic and policy consistency, and the ease of doing business.

Therefore, while the removal of tax holidays is acceptable, there has to be a concerted effort to reduce the inefficiencies in our system, and ensure stable and consistent policies to attract investors. This needs to be pursued as a matter of priority.

The key success factor will be the implementation of these reforms, which has been a challenge for successive governments