The Managing Partner of KPMG Sri Lanka Reyaz Mihular, in his preview of Budget 2022 in mid-November, stated that “the government should use it as an opportunity to clearly enunciate its economic policy and set a well-defined direction going forward.”

He added: “Since last year, we have had a lot of toing and froing on key decisions impacting the economy, which confused investors in the market – ultimately, people look for stability when considering economic prospects.”

“Of course, we are going through very difficult times and normally budgets give goodies to people; clearly, the government is not in a position to do so this year,” he continued.

On the allocation of funds in the budget, Mihular mentioned the following: “I think we need more allocation of funds for education, and healthcare is a no-brainer. The fact that we had a reasonably good primary healthcare system has come to our rescue in a big way during the pandemic.”

One of our biggest resources is intellectual capital, he noted, adding that our competitiveness in the world economy can be improved if we have educated, well-trained people.

However, our infrastructure is underutilised, there is insufficient digitalisation and we produce graduates with little relevance to the current job market. And he asserted: “I think we already allocate a reasonable sum of money for healthcare and education. But my problem is how effectively we are using that money.”

Talking about the tax regime, he opined: “The gold standard for direct taxes is a minimum of 20 percent whereas ours has come down to grossly inadequate levels of around 11-12 percent.  We need to drive direct taxes up – that’s how you pay for all the good infrastructure facilities we want. Also, the administration of the tax system needs to ensure that everybody pays their fair share rather than a few paying their dues and everyone else having a free ride.”

Touching on the foreign currency crisis, Mihular said that “we have a severe foreign currency deficit due to fairly ad hoc decisions that have been made over the years; many businesses are suffering as a result and this has been a huge blow to the economy. Having a clear and proper plan with regard to how we are going to overcome this issue is of utmost importance.”

When asked about environmental, social and governance (ESG) companies, he elaborated: “I would say all three pillars of environment, social and governance have equal relevance and weightage. We’re seeing the consequences of environmental abuse very clearly in all corners of the globe. The world leaders at the recently concluded COP26 [summit] emphasised the absolute need to reduce global warming to avert an economic disaster across the world.”

Making sure that there is governance in place to eliminate discrimination and provide equal opportunities for people at work are essential pillars of an ESG company, he emphasised, adding that they are not just niceties to be included in an annual report but should be an integral part of the company’s business planning.

Thereafter, Mihular focussed on business risks: “Anything that you do has risk; it is the substance of a business. If you don’t have risk management at the core of how you plan your business, your work processes etc., you’re going to have a lot of unpleasant surprises at great cost to the company.”

In his concluding remarks in this edition of LMDtv – and in the context of discussing the long-term economic prospects of Sri Lanka – KPMG Sri Lanka’s Managing Partner asserted that “we don’t have the size nor the resources to excel in heavy industries. The real future is in the services sector. With a very literate and trainable population, we should aim to be a service hub that can plug into the global supply chain.”

“I think if we focus on being an excellent service provider, Sri Lanka could easily be an upper middle income country in the not too distant future,” Mihular added.