manusath-derana

Highlights of Budget 2021 and impact on export Sector 

November, 20, 2020

By Export Development Board

Higher exports will strengthen 2021-2023 medium-term program of poverty alleviation and economic revival

The Export Development Board (EDB) is pleased to see an export-focused budget, which will support strong export growth led by investment, value addition and maximizing Sri Lankan natural resources. This is a pivotal change in Sri Lanka’s growth strategy which will be led by the exporters.

Highlights of the Budget 2021 and impact on the export Sector:

Investment and business opportunities

Proposals:

Establish a modern investment zone for local and foreign private investors under the Strategic Development Act.

ICT parks in Galle, Kurunagala, Anuradhpura, Kandy and Batticaloa and invest Rs.10 billion to develop these parks as eco-friendly new cities, connected to the expressway network and other infrastructure facilities.

Proposal: US $ 10 million investment in export industries, dairy, fabric, tourism, agri and ICT will get a 10-year tax holiday through the Strategic Development Act.

Commodity trading: In order to promote the Colombo and Hambantota ports as commodity trading hubs in international trading and to encourage investments in bonded warehouses and warehouses related to offshore business, exempt such investments from all taxes.

Pharma manufacture: Provide bank and financial facilities on Treasury guarantees to increase the production capacity of State Pharmaceutical Manufacturing Corporation to expand the production of essential pharmaceuticals. And also to establish a modern investment zone for local and foreign private investors under the Strategic Development Act.

A five-year tax concession will be made available from January 1, 2021 to domestic industrialists.

For the next five years, agri, livestock and fisheries sectors to be income tax free.

Expectation/impact on exports: Increase investments and create business opportunities while focusing on a more dynamic business ecosystem.

 

Economic diplomacy

Proposal: Expand the contribution of the diplomatic missions for economic diplomacy.

Expectation/impact on exports: Optimises the opportunities for exports, tourism, foreign employment and investment in our country under the dynamic world economic conditions.

 

Bilateral trade agreements 

Proposal: The EDB and Foreign Affairs Ministry to take the lead in formulating bilateral trade agreements.

Expectation/impact on exports: Expanding the market for exports of our country’s specific agricultural products such as tea, cinnamon, pepper, traditional ornaments and consumer goods, as well as toxic-free vegetables, grains and fruits, etc.

 

Trade policy

Proposal: Formulation of a balanced trade policy yielding long-term returns.

Expectation/impact on exports: To increase export earnings of our industrial products and to save foreign exchange through import substitutions that could be produced locally.

 

Contribution of technology for exports

Proposal: Convert economy as a technology-based entrepreneurial economy by expanding entrepreneurial development, technological infrastructure and related services

Expectation/impact on exports: Enable enhancement of the contribution of the technology sector for exports and its contribution for knowledge and professional services of the national economy.

 

Import and export procedures (one-stop shop)

Proposal: Make import and export procedures more efficient so that the officials of the required regulatory bodies will be assigned to the Import and Export Department to provide the required services.

Expectation/impact on exports: Increased facilitation for exports.

 

New tariff system

Proposal: Relaxation of the import and to implement the new tariff system.

Expectation/impact on exports: To develop the local garment industry as a local and international garment manufacturing hub with high-quality garment and leather products demanded by foreigners and tourists.

 

Colombo Port City Economic Zone

Proposal: Establishment of Colombo Port City Economic Zone.

Expectation/impact on exports: Creation of extensive employment opportunities for Sri Lankans and increase in foreign exchange earnings for the country.

 

Enhance agriculture sector production

Proposal: Limit importation of agricultural commodities except the items that cannot be produced domestically (Negative List) and to impose the special commodity levy to balance the supply and demand of domestic production for selected agricultural products.

Expectation/impact on exports: Enhance the domestic production and increase the export potential of domestic agriculture products.

 

Strengthening domestic production for exports

Proposal: Impose cess to provide the required protection on the imports and exports of domestic production.

Expectation/impact on exports: Encourage domestic production/value addition and increase exports.

 

Increase competitiveness of local products

Proposal: Remove import/para taxes on the raw materials not available in the country, machinery and equipment with modern technology and to classify all imports other than the above, under three categories of 0, 10 and 15 percent.

Expectation/impact on exports: To boost exports and also to encourage domestic industries to produce value-added goods.

 

Creating a level playing field

Proposal: If any commodity has been exempted from VAT at its importation point, it is proposed to exempt from VAT, the domestic production of that particular commodity as well.

Expectation/impact on exports:  Creating a level playing field for local producers thereby enhancing domestic production.

 

Encourage exports of multi-national companies

Proposal: Reduce the tax imposed on their dividends by 25 percent in 2021 and 50  percent in 2023, under the condition that they increase their exports by 30 percent and 50 percent in the respective years.

Expectation/impact on exports: In order to encourage the exports of multi-national companies, which are import based, for requirements of the domestic market.

 

Measures to promote small and medium-scale exports (TIEP scheme)

Proposal: Providing temporary import facilities for raw materials, which are not available in Sri Lanka, spare parts, processing and packing materials, labels, stickers, catalogues and brochures to promote the products of direct and indirect exporters. (This scheme will be implemented by the special Export Facilitation Centre established by the EDB and Sri Lanka Customs for small and medium-scale exporters and the inspection of all documents, including import/export declarations will be carried out by relevant institutions at this unit.)

Expectation/impact on exports: Enhance the export of high-quality goods through high value addition to local inputs.

 

Tapping/penetrating emerging trade opportunities 

Proposal: Allocate Rs.750 million to take the necessary steps to overcome the barriers faced by our entrepreneurs in order to utilise market opportunities presented in the emerging Asia-Pacific region, Africa, the Middle-East and Western countries.

Expectation/impact on exports: Increase market access for our exports.

 

Export insurance

Proposal: Implement an insurance scheme through Sri Lanka Export Insurance Corporation, with the contribution of an insurance premium of one percent of the export revenue.

Expectation/impact on exports: Accelerate the financing facilities through export receipt confirmation.

 

Fishery

Proposals:

Simplify the administrative process for the exportation of most sought-after fish and aquatic plants, to develop tissue culture methods, to increase the availability of fish feed and to increase airport and cargo/freight facilities for exports.

Allocate Rs.200 million for the development of Fisheries Farm Zones, with infrastructure facilities, in line with the environmental standards in the Batticaloa, Jaffna, Puttlam and Mannar districts, which are suitable for fish production such as prawns, lobster, carp, tilapia and modha.

Expectation/impact on exports: Increase in exports of fisheries products.

 

Gem and jewellery

Proposal: To develop the Ratnapura International Gem Industry City and enhance the gem and jewellery industry.

Expectation/impact on exports: Increase foreign exchange earnings from the gem and jewellery industry.

 

Boat and shipbuilding

Proposal: Provision of separate docks, dockyard access facilities and long-term credit facilities along with a tax break of seven years for local boat and shipbuilding.

Expectation/impact on exports: To promote boat and shipbuilding activities, which have high development prospects, due to the rising demand in the fisheries, tourism and shipping sectors and the high production potential of local manufacturers.

 

Batik products

Proposal: To ban the importation of batik products under national sub-headings.

Expectation/impact on exports: Development of batik and related fashions as a national industry.

 

Fruits and vegetables

Proposal: Import duty concession for cold room facilities for preservation of fruits and vegetables.

Expectation/impact on exports: Development of the F&V sector.

 

Export crops

Proposal: Provide relief on custom duties and financing facilities to obtain land and modern equipment for entrepreneurs investing in value additions to local crops such as pepper, cloves, cardamom and coffee suitable for the export market, thereby to provide additional allocation of Rs.2,000 million for these development work to be undertaken in the plantation sector.

Expectation/impact on exports: Development of these sectors to increase exports.

 

Spices

Proposals:

Expand the programmes implemented under the Plantation Industries Ministry with the aim of establishing export, cultivation and processing zones for Ceylon True Cinnamon.

Provide relief on custom duties and financing facilities to obtain land and modern equipment for entrepreneurs investing in value additions to local crops such as pepper, cloves, cardamom and coffee suitable for the export market and to provide additional allocation of Rs.2,000 million for these development work to be undertaken in the plantation sector.

Import of ginger and turmeric have been completely terminated to encourage the cultivation of those and further proposes a support scheme to promote the cultivation of ginger and turmeric as additional crops in coconut and rubber lands.

Expectation/impact on exports: Enhance domestic production of spices with the objective of increasing exports.

 

Encouraging industries for exportation of vehicles (reconditioning and assembling)

Proposal: Reduce the import taxes levied on vehicle spare parts required for new production sectors.

Expectation/impact on exports: Incentivise entrepreneurs in automobile industries engaged in vehicle repairing and vehicle assembly, thereby enhance the export potential of these new sectors.

Proposal: Encourage value addition to local resources.

Expectation/impact on exports: Diversification of exports and increase in foreign exchange earnings.

 

Corporate Income Tax

Exports, Tourism, Education, Medicare, Construction and Agro processing - 14%

Manufacturing - 18%.

Trading, Banking, Finance, Insurance, etc. (Standard Rate) - 24%. Manufacture and Selling/Import and Selling Liquor, Tobacco, Betting and Gaming - 40%.

Income generated from the supply of Health Protective Equipment to arms of Government and similar products by BOI companies on the request of Ministry of Health and Indigenous Medical Services, Department of Health Services, Tri-Forces and Sri Lanka Police to be considered "Deemed Exports" (Tax rate - 14%).

 

VAT rates.

Standard rate – 8% (effective from 1 December 2019).

Supply of Financial Services - 15%.

 

Export of goods and services - Zero Rated.

Exemptions apply for specified goods and services.

 

Economic Service Charge (ESC).

ESC was abolished with effect from 1 January.

 

Nation Building Tax (NBT).

NBT was abolished with effect from 01 December 2019.