Budget Speech 2014 Mahinda Rajapaksa

Description
Peoples Alliance Government. Our Government is encouraged that a substantial majority of our people continue to place their confidence in Mahinda Chintana- Vision for the Future.







BUDGET SPEECH
2014



His Excellency Mahinda Rajapaksa
President
Minister of Finance and Planning



Sri Jayawardenepura Kotte, Sri Lanka
21
st
November 2013







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This publication contains Budget Speech 2014, a list of reports and documents being submitted therewith
and the technical notes in the three languages.

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BUDGET SPEECH 2014


1.0 Introduction



1.1 Honourable Speaker, I am pleased to present the 9
th
Budget of the United People’s Freedom Alliance
Government having made use of the previous 8 Budgets to bring about national security, peace and
economic progress to our nation. Our nation is proud today that our Government has converted the once
mined lands of the North and East into lands that harvest the dividend of peace and prosperity. The
consolidation of the democratization process of the 30 year terrorist trapped North, having
institutionalized a Provincial Council and Local Authorities in the province through free and fair
elections, has further enriched the pride of our nation.


1.2 Almost 2 months ago, elections were held in 3 provinces that represent around one third of the
population. All political parties participated actively and demonstrated how well the longstanding
democratic process has advanced in our country. Out of the 2.7 million votes total polled in three
distinctly different provinces, 1.5 million, which is 56 percent voted for the People’s Alliance
Government. Our Government is encouraged that a substantial majority of our people continue to place
their confidence in “Mahinda Chintana- Vision for the Future” which, is designed to create a proud future
for their children. We were further encouraged by the fact that in the North, an overwhelming majority
of people have placed their confidence in the democratic process which was denied to them by the LTTE
for 25 long years, and proceeded to use the opportunity to elect its Provincial Council for the first time.


1.3 Honourable Speaker, this Budget is also presented soon after hosting the 23
rd
and the first ever
Commonwealth Heads of Government Meeting held in South Asia. It is also the first ever global event
that was held i n our country since the Non-Aligned Conference held in 1976. We ought to be proud that
we were able to restore the prestige of our motherland by being able to mobilize 53countries and giving
them an opportunity to see for themselves the turnaround we have made. The conference also gave
ample opportunities to the leaders who attended to witness the economic progress we have made and
the stable democracy that prevails, which will convince them that the fabricated viewpoints being aired
by those who are campaigning against us are grossly wrong. The rare opportunity we secured by hosting
this summit to promote investment opportunities for our country aiming both the vast external markets in
the Commonwealth countries as well as the connected global markets, is our main economic benefit
from this summit. By hosting this summit 20 years after it was last held in an Asian country, Sri Lanka
while brining pride to the whole of Asia was also able to attract global attention to our economy as one of
the leading economies in emerging Asia. This will also pave way to increase investments and create
employment opportunities. The successful conclusion of this summit with the transfer of leadership of the
Commonwealth to our nation is a clear reflection of international recognition of our Government’s
foreign policy.


1.4 Despite the predictions of dooms and glooms about the economy, we are humbly proud to note that the
poverty level has steadily declined to 6.4 percent in 2013 from 15.2 percent in 2006. This did not happen
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by accident. We took electricity, which was available only to urban areas to almost the entire population.
We no longer remember the days of power-cuts. Electricity for all and at all times, is now a reality. Other
facilities such as access to water, quality roads, irrigation systems for lands in the dry zone, better
schools, hospitals, housing, sanitation and environment preservation have improved considerably and
continue to expand all over the country.“Mahinda Chintana towards a new Sri Lanka” our Government’s
mandate recognizes that these are basic needs of the people.


1.5 None of this could have been possible if our security forces did not bring about peace and national
security. Our committed farmers brought about food security. Our people who work overseas brought
valuable foreign exchange to their motherland. Our teachers were committed to provide quality
education to our students and our health workers were committed to improve health standards of our
people. Our rural based public servants worked hard to revive the rural economy. Our religious leaders
worked towards religious harmony. Reviving creative initiatives, our artists brought back the values of our
culture and arts. Our labour force ensured a higher national income through industrial peace and
continued productivity improvements. Global financial institutions and entrepreneurs placed confidence in
our economy. They all deserve a heartfelt appreciation for their uncompromising commitment to
promote peace, national reconciliation and economic progress.


2.0 The Economy



2.1 Honourable Speaker, our economy continues to progress steadily. The economic growth of 6.4 per cent
registered last year amidst adjustments made due to global instabilities and high oil prices and further
challenges due to the severe drought that was experienced, has increased to 7.8 percent in the third
quarter of this year. There is confidence that the economic growth will exceed 7 percent this year and
move towards 7.5-8 percent during the medium term of 2014-16 maintaining a growth in the real
economy well in excess of the expected 5-6 percent inflation.


2.2 Agriculture, the backbone of the livelihood of our rural community has bounced back from the setback
faced during the last two years due to unfavorable climatic conditions. The 2013Yala season has given us a
paddy harvest of 2 million MT, which is the highest in recent years. The production of maize, soya,
black gram, green gram, big onion, potatoes, fruits and vegetables has also strengthened the food supply.
The production of milk, dairy, poultry, meat, fish and eggs has also shown a similar improvement. Rice,
maize and poultry production is generating surplus exports.


2.3 Increased paddy, maize and soya bean production has boosted rice processing, flour milling and
vegetable oil production. The coconut production which, severely suffered due to the prolonged drought in
the coconut triangle, is recovering with a favorable production trend. The production of tea, rubber,
cinnamon and other export crops has also shown an improvement. Remunerative farm gate prices, the
fertilizer subsidy, price stabilizing tax structure at the point of imports, provision of quality seeds and
planting material and better storage and marketing facilities have helped our farmers to increase
production through diversified crop cultivation.
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2.4 The tourism industry has sustained its growth momentum with foreign tourist arrivals reaching 1.5
million and domestic tourism expanding to 3.5 million. Foreign earnings from the industry during this
year is expected to be around US$ 1.5 billion and investments have expanded well over US $ 3 billion to
create new capacity in this sector to be able to accommodate 2.5 million foreign tourists and 5 million
domestic tourists by 2015. The use of local food, fabrics, furniture and equipment in the tourism
industry must be expanded to further enhance the economic contribution of this industry.


2.5 The contribution of the country’s construction industry now accounts for 10 percent of GDP. This sector is
growing at around 17 percent due to expanded investments in infrastructure as well as higher private
investments in urban property development, housing construction, tourism facilities, new factories and
other logistics. This industry also contributes for the development of a wide range of engineering and
technical fields as well as the building materials industry.


2.6 Honourable Speaker, we have offered many incentives to encourage imports competing industries such
as cement, steel, tyres/rubber based products, agricultural/ tea industry machinery, equipment/ spare
parts, power generation/transmission machinery and equipment, building material, furniture
and boat/ship building. Similar encouragements have been extended to increase new investments in
food processing, sugar and vegetable oil manufacturing, dairy and pharmaceutical products and to
increase the production of renewable energy and coal power. Many of these activities have a potential to
graduate to export markets in the medium term. The Customs tariffs that will come into force tonight
will facilitate the expansion of such value creating and import competing industries. Quality standards
will be enforced on imports and exports.


2.7 Export industries which were confronted by depressed global markets, have picked up showing a

2percent growth. The apparel industry has shown a 6 percent growth and is expected to generate US$

4,000 million export earnings this year. Value added tea, rubber and cinnamon products adds around
US$ 3,000 million to export earnings showing how plantation crops could be translated into being high
value manufactured exports. Software, gem and jewelry, handlooms and confectionary industries have
gained momentum. Export earnings are expected to generate US$. 10,000 million this year. The earnings
from foreign employment are expected to be around US$ 7,000 million.


3.0Priorities of the External Trade Policy



3.1 Our endeavor is to encourage our products to reach large markets such as India, Japan, China, Australia,
Saudi Arabia, United Arab Emirates, Qatar, Russia, South Africa and Brazil in addition to American and
European markets, to create a new wave in export growth. We have shifted our education system to
equip our youth with the required skills for these export industries and to improve their employment
prospects with high income and productivity. We also incentivize our producers to develop skills of
their employees so that the overall productivity of our workforce will thereby improve. The Government
has arranged Euro 90 million low cost funds which is around Rs. 16 billion, to provide credit facilities at
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an interest rate not exceeding 8 percent for manufacturing and SME industries to modernize their
factories with energy efficient technology to improve international competitiveness.


3.2 Our banking and financial institutions need to focus its lending towards production and value creation
industries and move away from traditional import biasness in their operations. To further facilitate the
export industry growth, online facilities are in place with regard to port and customs operations. Such
facilities will be extended to cover imports as well. We have already declared free ports and bonding
facilities to promote the value addition process and expand exports from our country. We have set our
exports target to be US$ 20 billion in 2020. Towards this end the improvement in productivity is as
important as maintaining a flexible exchange rate regime.


3.3 Honourable Speaker, our export economy need not be confined to goods. This country has proved its
potentials in exporting services such as business &knowledge processing services, professional services,
ports & aviation services and banking & financial services. These services too have grown remarkably
during the last 5 years and are expected to generate over US$ 5 billion earnings. As skilled and technical
categories are encouraged towards foreign employment, earnings from such sources are projected to be
around US$ 10 billion in 2016.


3.4 Our country is now well integrated with international financial markets. The Government and banks
have mobilized funds with 5 -10 year maturities through internationally traded bonds. This has
improved availability of foreign funds required for the financing of both Government and private
development expenditure. This has also provided a good opportunity for our exporters, high income
earning overseas employees, commercial banks and local funds to put their investments and diversify
their earnings sources.


4.0 State Enterprises



4.1 Honourable Speaker, our Government will not privatize state enterprises or state banks. I firmly believe
that state enterprises should have their presence in the economy for there to be a fair balance between
the public sector and the private sector to ensure economic and social progress in our country. Similarly,
we have formulated laws to protect our land resources from outright transfers to foreign ownership.
From this year, foreigners can have access to state and private land only through long-term lease
arrangements. As infrastructure development has improved the value of all lands, it is necessary to
implement a land lease tax structure to protect long-term value of lands. Hence a 15 percent upfront tax
will be imposed in the event of lease of state or private lands to foreigners.


4.2 It is in this spirit that our Government has strengthened State Owned Business Enterprises. The
Government budget through its public investment program has built up the asset base of Ceylon
Electricity Board (CEB), National Water Supply & Drainage Board, Airport &Aviation Services and Sri
Lanka Ports Authority to increase their long term earning capacity. I propose to convert all previous
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loans granted to them by the Treasury, to Government equity in order to further strengthen their
balance sheets, while also enabling them to pay annual dividend to the Treasury.


4.3 The results from our policies are now visible. The power generation capacity of hydro power plants has
improved considerably to 1,357 MW. This has also been blessed with the addition of 300 MW from the
first coal power plant, thereby enabling the reduction of the use of expensive fuel based power to 294
MW. Renewable energy generation has increased up to 422 MW. Transmission losses of the CEB have
reduced to 11 percent. This together with the cost recovery pricing strategy that has been put in place has
helped the CEB to eliminate its last year’s loss of Rs. 61 billion. CEB has also commenced the reduction of
its liabilities to banks and the Ceylon Petroleum Corporation (CPC). The completion of two other coal
power plants with a further 600 MW of new generation capacity by the end of this year, will further
strengthen the balance sheet of the CEB.


4.4 Public investments in new water schemes in almost all provinces have made a stronger revenue base for
the National Water Supply & Drainage Board. An investment of US$300 million has also been made to
reduce nonrevenue water to 20 percent by 2016. The completion of water supply schemes such as
Ruhunapura, Aththanagalle, Kurunegala, Matale, Hambantota, Ampara, Anuradhapura, Jaffna,
Batticaloa, Dambulla, Mahiyanganaya, HaliEla, Moneragala,Ratnapura to provide water connections to 1
million households by 2016 will make National Water Supply& Drainage Board stronger in its
performance. I propose to establish a National Community Water Supply Department to regulate and
develop community water supply schemes in order to ensure water quality standards and proper
maintenance of such projects. I propose to allocate Rs. 300 million for community water supply
initiatives under this Department.


4.5 In terms of the ongoing capitalization to strengthen the two airlines, a further US$ 150 million will be
provided to SriLankan Airlines and US$ 50 million to Mihin Lanka in 2014. The Treasury has made
arrangements to take over the shares acquired in SriLankan by the state banks from the foreign
shareholder so that state banks could be relieved of this burden. In order to strengthen the bus fleet of
Sri Lanka Transport Board (SLTB) with a further 2,000 buses, Rs.1,000 million has been provided to
SLTB in support of its capital investments. In addition, I propose to provide Rs. 500 million to bridge its
revenue shortfall.


4.6 Ceylon Petroleum Corporation (CPC)has also made a significant turnaround. It has contained its losses
and has also reduced its debt to banks. A Government Guarantee will be provided to the CPC to enable
the raising of long term capital to restore its depleted pipeline network, storage facilities and the
refinery. I am pleased to inform this august Assembly that, out of the 54 State Owned Business
Enterprises, 47 have been turned around to be profitable entities. I value the contribution made by the
Committee on Public Enterprises (COPA) through its Parliamentary oversight functions towards the
improvement of governance and accountability of these enterprises.
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5.0 State of the Budget



5.1 Honourable Speaker, I wish to remind our fiscal experts in the opposition that our fiscal policy
framework has performed better than those followed by them prior to 2005. All post 1977 Governments
prior to us operated higher budget deficits than the deficits that prevailed during our time. The
Government during 2002-2004 removed pension rights of public servants and also imposed a
recruitment freeze to the public sector. At that time, no alternative to privatization was considered and
public investments were reduced, while keeping a deficit in excess of 8 percent and debt over 100
percent of GDP. This is the reality associated with our fiscal legacy.


5.2 Our Government, in fact got back some of the already privatized enterprises and certain others that failed
after privatization to rescue them and put back in business. Gas Company, SriLankan, Sri Lanka
Telecom, Pelwatte and Sevanagala Sugar companies, Colombo Hilton etc. are now government owned
and many of them have already paid dividend income to the Treasury. Our budgetary policy enabled us to
accommodate expenditure on high public investments, increased salaries and pension payments,
Samurdhi benefits, fertilizer and seed subsidies. Budgetary allocations were made for the recruitment of
teachers, doctors, nurses, other public sector employees and around 100,000 unemployed graduates to
various positions in the public service.


5.3 Further, funds were also provided for the liberation of the country from terrorists, to demine a large area of
1,557 sqkm of land, resettle nearly 300,000 displaced persons and to develop livelihood avenues for
them. The budgetary provisions were also used for the restoration of security, peace and development.
Provisions were increased to implement the recommendations of Lessons Learnt and Reconciliation
Commission and to popularize the usage of bilingual practices to promote national reconciliation. We
have also been able to provide a Living Allowance to all parents of our three forces, disabled soldiers
and those who unfairly lost their livelihood simply because they rose against the labour repression in
1980 July. The development expenditure for rural development is unprecedented.



5.4 Honourable Speaker, with all these, the budget deficit has been reduced to 5.8 percent of GDP this year.

We target a budget deficit of 5.2 percent of GDP in 2014 and 4.5 percent in 2015. We are determined to
bring down the budget deficit to 3.8 percent by 2016 and reduce our Debt /GDP ratio to 65 percent. That
is the legacy we propose to leave behind for our future generations.


6.0 Government Revenue



6.1 The Government revenue this year is likely to be around Rs. 1,100 billion. Revenue from Income tax,
VAT and NBT on domestic activities has increased by 14 percent and is on a buoyant growth path.
Revenue from taxes imposed at the point of Customs remained sluggish due to the reduction in motor
vehicle imports. Revenue from Excise taxes on liquor and cigarettes has moderated.
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6.2 Honourable Speaker, we need to strengthen the Government revenue efforts in view of high
commitments of the Government to provide a wide range of public services, welfare programs and
public investments. The Government has introduced several measures to prevent leakages associated
with tax on liquor, motor vehicle imports under concessionary duty schemes, under invoicing in the
importation of used motor vehicles, steel, tyres and motor spare parts. Accordingly motor vehicle
deprecation schedule applied at the point of import for the calculation of Customs based taxes will be
revised to prevent under valuation.


6.3 It is proposed to extend the 2 percent NBT applicable to the banking sector to all banks and financial
institutions to provide equal treatment to the banking and non-banking sectors and to expand the tax
base. It is also proposed to fix the tax-free threshold applicable for VAT on supermarket scale retail trade at
Rs. 250 million per quarter. In order to prevent manipulations on the computation of turnover through
exempted items, I propose to fix a limit of 25 percent of the total turnover as exempted value from VAT in
relation to such business. Telecommunication Levy will be fixed at 25 percent.


6.4 The Inland Revenue Department (IRD) is being computerized to make tax administration efficient and
tax payment simple. A new Revenue Administration Management Information System (RAMIS) is
being introduced to automate the processes of IRD and eventually link the IRD with Sri Lanka Customs,
Department of the Registrar of Companies, Department of Motor Traffic, the Land
Commissioner General’s Department and the Ministry of Finance and Planning. The new system will
enable the use of a Personal Identification Number to coordinate all transactions and will also to
facilitate online tax payments etc.


7.0 The Current Expenditure



7.1 The Government current expenditure at around Rs. 1,200 billion remains higher than Government
Revenue. The payments of salaries and allowances to public servants for the provision of education,
health, rural development, administrative and extension services and national security totalRs.390
billion. A further Rs. 125 billion is spent on pensions. Fertilizer subsidy, pharmaceutical drugs and a
wide range of welfare expenditure takes another Rs. 100billion. These expenditures must be secured.
The total interest cost of Rs. 445 billion of which, domestic interest payments amount to Rs. 360 billion
needs to be managed. However, the reduction of interest rates must be done gradually in order to
protect both the savers as well as borrowers. Further, it is necessary to maintain development
expenditure at the same scale of 6 percent of GDP to be able to expand economic activities.


7.2 The proper coordination of development programs in each sector in terms of economic priorities is
necessary to maximize benefits from public expenditure when foreign loans and grants are utilized in
addition to taxes and domestic borrowings. Therefore, I recommend that all grant-aided projects should
also to be channeled only through the Consolidated Fund and the National Budget, like foreign loan
funded projects having to follow the applicable planning procedure. To ensure consistency and to avoid
duplicity in the implementation of the national development process, all expenditure of the private
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sector and Development Partners that will qualify for social responsibility related tax exemptions, will be
implemented having aligned with national development programs. Since grants do not create a debt
and hence has no bearing on the deficit, I propose to create additional provisions in the Budget, on
account of such grant assistance.


8.0 Agrarian, Livelihood and Irrigation Development



8.1 Honourable Speaker, we consider that our rural centric development strategy must focus on agriculture
for food security, traditional healthy living, bio diversity, a clean environment and a higher income to
the rural people. Budget consultations with the farmer community representing all districts in the
country, expressed confidence in the Government’s agricultural policy and development strategy. They
did not ask for any handouts and wanted the Government to concentrate on improving irrigation,
providing quality drinking water and protection from wild animals. Therefore, the 2014-16 medium
term Budget will give priority to these areas. Accordingly the 2014 Budget has allocated Rs. 1,700
million for downstream and livelihood development activities associated with the recently developed
major reservoirs such as Weheragala, Rambaken Oya, Deduru Oya. I propose to increase the irrigation
budget by a further Rs. 14,000 million for the early completion of Yan Oya, Uma
Oya and Moragahakanda development programs,as they will help to improve irrigation and drinking
water facilities to several difficult areas in the south and north and also enable power generation.


8.2 The farmers on their own suggested the need to reduce the usage of chemical fertilizer and pesticides to
reduce their harmful effects on food, water quality, health, animals and the soil. Since such a shift would
take some time, I propose to continue with the fertilizer subsidy scheme to provide all varieties of
fertilizer at Rs. 350/per 50 kg bag for paddy cultivation during both the Yala and Maha seasons. A
subsidized price of Rs. 1,250 per 50/kg bag will also be continued for all other crops. I propose to
allocate a further Rs. 300 million in 2014 to encourage interested farmers and seeds farms, to produce
quality planting and seed material and make them available in the market under a registered trademark
recognized by the Agriculture Department. Purchasing centers of Divi Neguma agrarian services linked to
Lak Sathosa will be set up so as to ensure that farmers will be able to secure guaranteed producer prices
for potato, onion, dried chilies and grain varieties.


8.3 The Government has recruited qualified field level officers to the Agriculture Department and the
Agrarian Development Department to strengthen extension services. Funds will be allocated to
modernize all 300 Agrarian Development Centers to be able to meet farmer needs. I propose to
implement a three-year rehabilitation program to restore abandoned paddy land and put them back to
productive use by cultivating paddy, fruits, vegetables and also for floriculture, using organic fertilizer. I
propose to allocate Rs. 2,300 million in 2014 for the rehabilitation of tanks, minor irrigation schemes and
abandoned paddy lands. I propose to grant a monthly allowance of Rs. 300 to field level officers in
agricultural extension services, veterinary services, irrigation and wildlife. I propose to provide
motorcycles on five-year lease basis, to all such field level officers to improve their regular availability at
field level and also to pave way for them to own an asset at the end of the lease term.
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9.0 Partnership with the World Food Program



9.1 Honourable Speaker, the United Nations World Food Program has assisted our nation in the past to
feed displaced people affected by terrorist attacks, the Tsunami and various other natural disasters. In
appreciation of this assistance, our country is now in a position to provide food for the needy people
who are faced with similar situations in other countries. Therefore, I propose to donate 50,000MT of rice
to the World Food Program of which 10,000 MT will be given to World Food Program office in Sri
Lanka. The Government has requested that Sri Lanka be registered as a supplier nation to the World
Food Program so that our farmers can grow rice to be supplied to external markets while also serving a
worthy cause. I consider that the revival of agriculture is a reflection of being able to restore the
traditional pride of our farmer community. Hence, I propose to setup a Revolving Fund of Rs. 300 Mn.
under each District Secretary in the major grain producing districts, to streamline related production and
marketing activities.


10.0 Smallholder Plantations



10.1 Honourable Speaker, smallholder plantations also play a significant role in our economy. The
Government provides assistance to these cultivations by subsidizing planting material, replanting, new
planting and fertilizer. In order to be able to get best results from the prevailing subsidies I propose to
grant Rs. 5,000 per acre, once a year subsidy, to all tea smallholders to improve the conditions of their
lands through water and soil conservation.


10.2 I also propose to support land preparation towards water retention, soil conservation and to increase the
use of organic fertilizer for smallholder coconut cultivation. The prevailing high taxes on edible oil at the
point of Customs will be maintained to increase long-term cultivation interests. It is proposed to restrict
the importation of coconut oil and palm cornel and remove Nation Building Tax on coconut oil millers
for 3 years to strengthen the coconut industry. A new incentive scheme will be implemented to encourage
manufacturers of coir products for export in recognition of their value addition in foreign exchange. The
CESS applicable on the export of tea, rubber, coconut, cinnamon and pepper in primary form will be
further strengthened to channel such revenue to encourage value added exports made out of these
primary products.


11.0 Large Scale Plantations


11.1 Large-scale plantations were privatized in 1992 on 50-year lease arrangements. However, some of these
plantation companies are lagging behind. I propose to undertake a comprehensive assessment of the
under performing plantation companies. Similarly, the best performing plantation companies that have
increased their productivity, application of bio fertilizer, and engaged in worker welfare, brand
promotion and investments to promote high value tea exports should be encouraged. Therefore each
plantation company will be required to submit a report on their performance with development plans
and targets, before March 31, 2014 to enable the Golden Shareholder being the Government to make
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appropriate decisions for the development of plantations under each company. I propose to implement a
credit scheme with 8year maturity and 6 percent interest to every company that has so far performed
well, provided they -commit to replant an agreed extent, are committed to ensure social development of its
plantation workers and increase the volume of its value added tea exports. I propose that banking
institutions will earmark around Rs. 500 million for this development loan scheme in 2014. Provisions of
existing leases will be suitably amended incorporating new conditions necessary to ensure the
development of this important sector.


12.0 Farmer Pension Scheme and Crop Insurance Scheme



12.1 I propose to implement a pension scheme to provide a minimum of Rs. 1,250as a monthly pension for
farmers over 63 years of age, from January 2014. I propose to use the proceeds of the Govi Setha lottery
along with a capital contribution of Rs. 1,000 million from the Government to strengthen this
contributory Pension Fund. The introduction of a contribution from farmers, who use the fertilizer
subsidy scheme as announced in my last Budget, should provide a regular flow of funds in support of
payment of compensation for crop failures. I propose to extend this to cover all smallholder farmers
engaged in all crops so that they could also be compensated in the event of such causality. The
Government is also in the process of securing Standby Funds from the World Bank to compensate losses
due to adverse climatic conditions, without creating an unanticipated burden to the Budget.


13.0 Research and Food Technology



13.1 The Government has granted a wide range of incentives for research and development as well as a
Research Allowance to university lecturers and other scientists. The Government and private sector
partnership in setting up of a science park for the promotion of nanotechnology in manufacturing has
confirmed how well the two sectors can work together with mutual trust in furthering advanced
technology and research. We are encouraged with the research initiatives undertaken by both private
and public sector institutions particularly in the field of agriculture. Research initiatives of Sabaragauwa,
and Wayamba universities in food technology and livestock and their active involvement with such
industries have produced results. Systems and procedures required to be followed by research institutes
will be further simplified to encourage the active involvement of universities and for research
institutions to be able to meet market demands. I propose to allocate Rs.500 million for research lab
facilities, equipment and research work by agricultural faculties in provincial universities at field level
together with successful ventures in dairy, poultry, inland fisheries, animal husbandry and food
technology.


14.0 Lead Export Industries



14.1 Sri Lanka’s high value tea, apparel and handlooms and rubber products dominate country’s exports,
employment and value chain activities. Our Government’s vision is to raise export earnings of these
three industries to US$ 10 billion by 2016.In the case of apparel exports, our vision is to position Sri
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Lanka among the top ten high quality apparel manufacturing countries in the world by 2020. Therefore, in
support of further innovation in this industry, triple deductions will be provided for research and
innovation carried out within businesses, while recognizing the cost of purchasing international
intellectual property rights and the cost of operations relating to such rights, for tax deduction. Royalty
income will be made tax free for a period of 7 years. Higher value added tea exporters securing prices in
excess of US$12 per kg., having established internationally reputed local brands in packed form having
used 75 percent home grown tea, will be permitted to import any specialty tea, free from restrictions to
facilitate blending to meet market needs. High value tea and rubber product exports will be encouraged
through increased cultivation of these crops and by maintaining a high level of CESS on primary
commodity exports. Market access to Japan, India and China will be explored for these commodities
through Bilateral Trade Arrangements, in view of the high trade deficit Sri Lanka runs with the three
countries.


15.0 Fisheries Industry



15.1 Honourable Speaker, the development of fisheries harbors, anchorages, landing centers, cold rooms and
market facilities have expanded the production capacity of the fisheries industry. During the last five
years, 2,524 multi day vessels, 3,743 one day vessels and 4,743 normal vessels have been added to the
industry. The fish harvest has doubled in the last 5 years and has reached 500,000MT. Production of
inland fishery has contributed to 20 percent of the total fish production.


15.2 The production of dried fish and sprats, maldive fish, canned fish and fish food has increased, and has
resulted in supporting livelihood activities of the people engaged in this industry, while also reducing
related imports from 80,000MT in 2010 to 70,000MT by 2013. I propose to maintain higher Customs
based taxes on related imports to promote local production of these activities. The incentives provided to
small and medium enterprises engaged in the exports of fish food and ornamental fish will be further
expanded.


15.3 Priority will be given for the rehabilitation of existing harbor facilities, the early completion of
Silawathura, Gurunagar, Gandara and Kalametiya fishery harbours, the development of fishery harbours
and anchorages at Wennappuwa, Chilaw, Kapparathota, Dodandoowa, Hikkaduwa and
Negombo lagoon and also to further increase the number of fishing boats during 2014. I propose to
allocate Rs. 1,000 million for these development activities. I propose to maintain a high tax structure on
fishing boats at the point of import, to promote the local boat manufacturing industry.


16.0 Dairy, Livestock and Poultry Industries



16.1 Honourable Speaker, in our effort to reach self-sufficiency in milk, the local milk production has
increased and supplies 40 percent of local consumption requirements. The importation of 4,500 high
yielding cows has contributed to improve the production of Government dairy farms. Private sector
dairy farms as well as small and medium enterprises have substantially increased their investments in
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this sector. Further, the Divi Neguma initiative encourages backyard dairy farm activities. I propose to
allocate funds to import a further 20,000 high quality cows to promote small and medium dairy farms in
order to increase the annual average yield in excess of 1,500litersof milk per cow. A special loan scheme at
an interest rate of 8 percent will be implemented in support of SMEs in the dairy sector to promote
dairy farms, collection centers and equipment, the development of animal feed etc. A high CESS will be
maintained on the importation of butter, yoghurt and dairy products, to further support the dairy
industry.


16.2 Poultry production in 2013 has exceeded 153,000MT eliminating the deficit production that prevailed in

2009. Divi Neguma program has contributed to increase the informal market contribution to 34 percent. I
propose to introduce a pricing formula based on the cost structure in place of a price control on poultry to
regulate pricing and to safeguard both the consumer as well as the producer. I also propose to
introduce a grant scheme to neutralize impact on production costs due to taxes payable on inputs to
encourage exports. As this industry has witnessed a rapid expansion, I propose to allocate Rs. 200
million to strengthen related veterinary services with modern facilities, recruitment of veterinarians and to
grant a monthly allowance of Rs.7,500 for veterinarians.


17.0 Divi Neguma–Gama Neguma



17.1 Honourable Speaker, Divi Neguma initiative has nurtured several backyard economic activities among
households since it was first launched in 2010with the objective of setting up one million backyard
economies. It has now entered the 5
th
round. In this round, Divi Neguma intends to develop 125,000 model
home gardens, which will encourage the production of seed and planting material suitable to targeted
areas based on climatic conditions. I propose to grant Rs. 10,000 each to the5best Divi Neguma backyard
economies/ home gardens in each Grama Niladari division to incentivize those who participate in this
novel concept of micro enterprise development with the participation of the entire family. I request all
banks and financial institutions to grant at least 500 working capital loans of Rs. 25,000 at an interest rate of
6 percent without requiring any collateral to such winners, towards developing greenhouse farms,
poultry/ livestock /fish farms or handloom/small industries so that Divi Neguma families could emerge
as successful entrepreneurs.


17.2 Villages situated in difficult geographic locations are unable to fully benefit from mainstream
development activities primarily due to lack of proper transportation. In order to resolve this problem, the
Government recently implemented a program to construct bridges in such areas to establish
connectivity for transportation. I propose to accelerate this initiative by completing the construction of
1,000 such bridges in 2014. This is expected to provide access for the benefit of 500,000 families with
access to community water, education, health and livelihood activities expanding development activities
undertaken through the Gama Neguma initiative for which I propose to allocate Rs. 4,500 million. I
propose to allocate Rs. 300 million to provide small buses to these areas to improve transportation. I also
propose to grant an allowance of Rs. 15,000 to District Secretaries, Rs. 5,000 to Divisional Secretaries and
Rs. 3,000 to Planning Directors and Chief Accountants attached to District Secretariats to incentivize
13
them to coordinate rural centric work and to promote better expenditure management and supervision at
district level.


18.0 Child Nutrition



18.1 Honourable Speaker, special initiatives must be undertaken to reduce malnutrition in pregnant and
lactating women and in children. I propose to engage family health services to provide greater attention
towards promoting breastfeeding, use of nutritious food for children while also ensuring them better
health care. Divi neguma/Samurdi programs will be used to popularize the consumption of homegrown
vegetables, milk and eggs towards promoting better nutrition. I propose to allocate the required funds
and employ nutrition specialists in each district, teach the importance of proper nutrition to school
children, and carry out community level mobile clinics to promote balanced nutrition. I also propose to
impose regulatory restrictions relating to food related advertisement by permitting to advertise only
foodstuff with reasonable nutritional values. I propose to work with the World Food Program, UNICEF
and Food and Agriculture Organization to collectively implement a nationwide accelerated nutrition
initiative to reduce malnutrition and get maximum productivity from annual expenditure of around Rs.
7,000 million incurred by the Government on various programs to increase nutritional levels.



19.0 Women Enterprises



19.1 A large number of women are engaged in successful micro enterprises involving a wide range of high
quality products while generating a good source of family income and creating employment
opportunities for our people. These entrepreneurs explained to us that their business environment is
constraint by a variety of payments imposed on land and buildings, inadequate working capital,
complicated title related levies, insistence of traditional securities for small loans, administrative
rigidities and lack of sensitivity to their businesses by financial institutions and Government service
providers.


19.2 I propose to implement a Women Micro Enterprise Credit Guarantee Scheme against which Regional
Development Banks and SME Banking Units of Commercial Banks will provide working capital loans up to
Rs. 250,000 without requiring security. Age limit to be eligible for such loans will be extended up to 68
years. Beyond that age, a designated family member could be nominated to qualify to obtain further
facilities. I propose to dedicate 2014 – 2015 for Women Enterprise Development, to be facilitated by
Regional Development Banks.


20.0 Small Businesses and the Economy of the Self-employed



20.1 Honourable Speaker, small scale shops, tea shops, repairing stations, restaurants, tailor shops, saloons,
small groceries in commercial centers, small trade outlets on pavements and weekly fairs etc. provide
self-employment opportunities to a substantial number of people. A large number of consumers also
benefit from these widespread service providers. I propose to issue Divi Neguma entitlement cards to
small entrepreneurs subject to a payment of Rs. 500 to exempt them from having to pay multiple
14
payments to local authorities. I also propose to reduce the annual lease rental of land leased by state
agencies to such cardholders to Rs.1,000if the extent is less than half an acre. This facility will also be
extended to Samurdhi beneficiaries, who are already eligible for several other benefits. I propose to
simplify the provisions in long term leases given by state agencies to small entrepreneurs for
commercial purposes and in the case of any such lease that has already gone on for over 10 yea rs, the
lessee will be given the option to convert the arrangement to a 50 year long term lease. I propose that 50
percent of investment savings of Divi Neguma and Samurdhi beneficiaries and small time traders in
banks, be used to give small loans to them at a low rate of interest, on the basis of a group security to be
given by such borrowers. I propose to exempt small traders engaged in businesses with a monthly
turnover less than Rs.50,000 from all levies imposed by local authorities. Arrangements will be made to
provide suitable space to payment hawkers and small traders involved in mobile businesses along new
roads, in trade centers and weekly fairs in metropolitan areas.


20.2 I propose to set up a Revolving Fund to provide credit against confirmed supply orders from reputed
buyers to promote small craftsmen engaged in the manufacturing of unique artifacts, home décor,
designer fabrics, embroidery work, pottery and production of items using precious metals. I propose to
restrict the importation of household and office furniture and remove prevailing restrictions on the
transportation of furniture within the country to encourage the local furniture industry. Hotel and
property developers are encouraged to use locally manufactured furniture to the maximum extent
possible.


21.0 Social Services



21.1 The government has expanded welfare support for the elderly, the differently abled and low-income
families under various initiatives. In the 2013 Budget, I granted a Rs. 1,000 monthly allowance to the
elderly. Almost 221,000 elderly people have benefited from this scheme. A Rs.3,000 living allowance was
extended to differently abled people. Skills development training is given to them through vocational
training to empower them to be engaged in livelihood activities. I propose to provide Rs. 100 million to
modernize these vocational training schools located all over the country to improve vocational training
facilities, including the provision of new equipment and the introduction of new courses.


22.0 Child Abuse and Violence Against Women



22.1 Honourable Speaker, it is disappointing to note that our value-based society nurtured with religion,
culture and traditions has to witness child abuse and violence against women. Sri Lanka Women’s
Bureau, Child Protection Authority and Sri Lanka Police have expanded many initiatives to prevent
these incidents. I propose to allocate Rs.300 million to engage field level officers at Divisional Secretariats
to facilitate to prevent such incidents. It is proposed to set up more safe-houses for the benefit of such
victims and expand the units set up in police stations to be able to better deal with incidents of child
abuse or violence against women. It is important to expand awareness programs in schools through
parents - teachers societies and by establishing a network with the involvement of Samurdhi societies and
15
community based organizations to address these concerns and also to promote volunteers to be engaged in
family counseling.


23.0 Empowering Pradeshiya Sabhas



23.1 Community infrastructure facilities associated with Sathi polas, waste management, drainage systems,
access roads, children’s parks, public sanitation facilities etc. have not been improved as Pradeshiya
Sabhas have not generated adequate income to be able to purchase basic machinery and equipment
required to upgrade and maintain them. Hence, I propose to provide capital equipment such as tractors,
small construction tools and machinery to every Predeshiya Sabha in 2014. I also propose to provide Rs.
1 million per month to every Predeshiya Sabha to supplement their working capital so that community
infrastructure facilities could be maintained and rehabilitated in an orderly manner.


24.0 Wildlife Protection and Conservation



24.1 During Budget consultations, it was revealed that the cultivation of animal fodder in reserved areas and the
rehabilitation of water tanks and such other facilities are essential to prevent animals from entering
villages. I propose an allocation of Rs. 10 million to each relevant Divisional Secretariat to develop
Wildlife Conservation and Community Protection Schemes taking into consideration the specific needs of
each such Divisional Secretariat area. I propose to allocate Rs. 200 million to the Wildlife Department to
purchase required utility vehicles and equipment. I also propose to extend the insurance scheme
introduced in the 2013 Budget to compensate losses to human life and property to cover crop damages as
well, from 2014.


25.0 Health Services



25.1 Honourable Speaker, as our people are now confronted with new challenges with the increase of non-
communicable diseases such as cancer, stroke, heart attacks, kidney failure etc. we need to make a
concerted effort to take control of the situation. Work is already in progress to transform Maharagama
Cancer Hospital to be able to manage an increased number of indoor and outdoor patients. I also
propose to set up radioiodine treatment and radiotherapy units at Jaffna, Kandy, Kurunegala, Badulla,
Anuradhapura and Galle hospitals to reduce the waiting list of patients for such treatment at the
Maharagama Cancer Hospital from three and a half years to less than six months. These modern centers
will have facilities for preventive examinations and early detection as well as cost effective treatment
using modern machinery and equipment. National Stroke Center of Sri Lanka will be set up to manage
stroke related medicare. Facilities to provide medicare to kidney patients availing sufficient doctors and
medicine will also be provided on an accelerated basis. Preventive care against kidney diseases will also
be taken through the provision of safe drinking water to all on an urgent basis, through awareness
champagnes to prompt farmers to move away from the use of chemical fertilizer and pesticides and by
promoting the consumption of unprocessed food more favourable for consumption. I propose to allocate Rs.
900 million to provide Reverse Osmosis(RO) water purification plants to villages in the North Central
16
Province in which access to quality pipe borne water is not available in order to prevent waterborne
diseases.


25.2 It has been planned to provide an additional allocation of Rs. 2,000 million in 2014 for the development of
cost effective infrastructure facilities to deal with non-communicable diseases during the 2014-16
Medium Term Budget Framework. I propose to allocate Rs. 1,000 million for the accelerated
modernization of the two national children’s hospitals as centers of excellence capable of providing the
next 10 year pediatric care needs of our country and the related medical research facilities. Colombo,
Kalubovila and Ragama hospitals cater daily to around 10,000 outdoor patients and 7,500 indoor
patients. Since a large number of patients from Colombo and the surrounding districts rely on the
services of these hospitals, the facilities in them should be expanded and modernized. I am encouraged
that the People’s Republic of China has extended an outright grant to develop the OPD treatment and
ancillary facilities of these 3 hospitals at a cost of around US$ 180 million. I propose to provide
additional provisions in 2014 and 2015 to accommodate this grant aid for the development of health
services in the country. I propose to increase the annual Uniform Allowance for nurses, family health
workers and other staff by a further Rs. 500 – 1500 and the On-call Duty Allowance for paramedical staff
by Rs. 150 per month to encourage health sector employees. I also propose to increase the Risk
Allowance by Rs. 50 – 100 for those in eligible risk categories. When even the richest nations which
charge for healthcare are struggling to finance such services to their people, we all should be proud for
not only providing pharmaceutical drugs but also indoor and outdoor health care service throughout
the country, completely free of charge.


26.0 Arts and Culture



26.1 Honourable Speaker, with the widespread development witnessed across regions it is necessary that the
Government expands modern infrastructure facilities for performing arts and culture currently confined to
Colombo. In this context, I have secured a grant aid of around Rs. 3,000 million to set up two
performing arts and cultural centers in Kandy and Anuradhapura within the 2014-16 medium term
budget framework. Further, steps have been taken to modernize cultural centers in Jaffna, Trincomalee
and Galle. The modernization of the Lionel Wendt Art Center, Lumbini Theater, and Galle Municipal
Council Theatre will also be commenced in 2014.I propose to channel budgetary provisions to
implement special projects to document our heritage, culture and traditions and to popularize them
among our new generation.


27.0 Holiday Bungalows for Artists



27.1 I propose to allocate land blocks and provide seed capital to build 5 holiday bungalows exclusively
designed for artists. I request artists to top-up the Government contribution through a fund raising
campaign to make them enthusiastic partners of this initiative and rally round Sri Lankan tourism to
project country’s performing arts and the film industry. The performance of our multi talented artists at
17
the opening ceremony of the Commonwealth Heads of Government Meeting amply demonstrated their
capacity to take the massage of peace and reconciliation through rich performing arts of our country.


28.0 Education



28.1 Honourable Speaker, the Budget estimates placed before this august Assembly have provided Rs. 125
billion for general education. Rs. 80 billion is spent on teacher salaries and Rs. 10 billion to provide
textbooks, uniforms, mid day meals and transport subsidies. The creation of a child-friendly school
system, developing Mahindodaya laboratories, teacher training, quality improvements of text books and
teaching material and the introduction of technology streams to advanced classes are given priority in
the public investment program in the medium term. The development of 6,000 schools including 1,000
Mahindodaya laboratories and the rehabilitation of rural schools will be completed in 2014. An allocation
of Rs. 1,000 million will be provided to upgrade sanitation and other facilities in rural schools. A further
Rs. 750 million will be allocated to develop Maharagama Teacher Training College as a well-equipped
training center on all subjects, while facilities in all other teacher training colleges in the country will
also be upgraded. Furthermore, steps will be taken to implement the recommendations of the committee
appointed to resolve the remaining problems of Sri Lanka Teachers Service, Sri Lanka Principals Service,
Sri Lanka Educationists Service and Sri Lanka Education Administrative Service and to improve the
quality of education.


29.0 Pirivena Education



29.1 The 2014-16 Medium Term Pirivena Education Strategy aims at raising the student population associated
with Pirivena education by 25 percent by 2016. Towards achieving this target, the teacher participation in
Pirivena education also needs to be increased by 25 percent. I propose to provide Rs. 500,000 to each
Pirivena to improve classrooms, libraries, computer labs, furniture and equipment in order to upgrade
Pirivena education facilities. I also propose to extend facilities such as distress loans, property loans, the
Agrahara Insurance Scheme benefits and railway warrants to Pirivena teachers. Similarly, I propose to
increase the Student Allowance for monks to Rs. 15 per day and other students to Rs. 5 per day.


30.0 Skills Education



30.1 Honourable Speaker, our country needs to implement a fast-track skills development program to meet
market demands by gearing our youth to be able to secure high paid jobs and also to improve
productivity in industries and services in the next decade. The Government has therefore secured
around US$ 350 million budget support from the World Bank and the Asian Development Bank to
supplement Government expenditure on skills education. Accordingly, expenditure on skills
development and youth affairs has been increased to Rs. 12,105 million in 2014 to be shared with
external funding facilities to accelerate skills education in the country in the next 2 years. A diploma
awarding Technical College that is affiliated to the Moratuwa University will be setup in Homagama.
18
30.2 The 2014-2020 Vocational Education Strategy consists of rehabilitation and construction of Technical
Collages and Vocational Training Centers, development of training material and the provision of
equipment, staff training and professional development. These programs will target extending technical
competencies in agriculture, IT, accounting, irrigation, construction, ship and boat building, ocean
technology, tourism, beauty care and high tech competencies required for overseas skilled employment. I
propose to increase the allowances given to lecturers and students to incentivize skills education and
increase Diploma Holders with National Vocational Qualification (NVQ) Standards. The aim of skills
education is to develop 50,000 diploma holders and 50,000certificate holders in different skills with
NVQ Standards by 2015.


31.0 University Housing, Townships & Facilities for Advanced Studies and Research



31.1 Honourable Speaker, our universities have implemented a program to transform our university
township environment to facilitate to upgrade the university education of our country. We have given
high priority to resolve accommodation constraints of our university students. We have implemented a
hostel construction program in 15 universities for 15,000 students at a cost of Rs. 15,000 million. This will
completely solve the accommodation problems of first year and final year university students.
Incentives will be provided to those who provide further accommodation facilities from the
surrounding university township environment. I propose to increase the Academic Allowance of
university lecturers by 5 percent of the basic salary in accordance with our commitment to provide
attractive remuneration over the medium term.


31.2 The medium term development programs include the establishment of an Engineering and Technology
Faculty in the Sri Jayawardenapura University, Information Technology Center in the Kelaniya
University, an Advanced Medical Faculty in the Peradeniya University and an Electronics,
Petroleum and Aeronautical Engineering Faculty in the Moratuwa University. The capacity expansion of
management, food technology, veterinary science and agriculture faculties of Colombo, Wayamba,
Jaffna, Rajarata, Eastern, Uvawellassa, Sabaragamuwa and Ruhuna universities and the expansion of
advanced degrees in indigenous medicine and Ayurvedic teaching hospitals are also recognized as
priorities of the medium term. Along with these, the planned improvements in the quality of higher
education are expected to require an estimated additional sum of Rs. 9,000 million over the medium term.
I propose to top up the 2014 allocations by 2,000 million to accelerate these initiatives.



32.0 Sri Lanka as a Regional Medical Hub



32.1 Honourable Speaker, we have increased the number of medical specialists to 1,500 through an increase in
the number of doctors and medical researchers with postgraduate qualifications. Our strategy is to
double the number, so that every 100,000 of the population will have 11 Specialist Doctors. This will
provide 15,000 more doctors graduating from medical schools, with postgraduate opportunities. It will
also enable a higher number of specialist doctors to be deployed to District Hospitals and to be attached
to private hospitals.
19
32.2 The Ministry of Health has formulated a National Drug Policy Act for the regulation of drug use, clinical
trials and research activities in specialized hospitals. Time has also come to recognize the urgent need for a
proper Regulatory setup on food quality. Parallel to these developments, we propose to expand the
subject areas of the Postgraduate Institute of Medicine and to double the intake for postgraduate studies in
medicine. I propose an allocation of Rs. 2,500 million to build a state-of-the-art Post Graduate Institute of
Medicine over the next 3 years. This new Post Graduate Institute will connect neighbouring teaching
hospitals, while also extending modern facilities required for their postgraduate research and advanced
studies. I also proposed to setup a Centre of Medical Excellence to continue to obtain the services of
specialized medical professionals after the completion of their service term and to broaden specialized
medical services in our country.


32.3 I propose to give priority to increase medical specialists capable of treating kidney ailments,
malnutrition and similar contemporary challenges in our society. The Government will seek
international research and technology collaboration for our universities focused towards improving the
quality of drinking water, particularly in rural areas. I also propose to grant a monthly Intern Allowance
of Rs.750 for medical interns engaged in hospital services and a Research Allowance for medical
professionals to encourage them to engage in internationally recognized research and professional
development initiatives.


33.0 Professional Services Hub



33.1 Honourable Speaker, our country has made unprecedented progress in the field of accountancy,
commerce, finance, law, IT, engineering and architecture. The number of people engaged in these
professions has increased considerably. Therefore, I propose to support internationally reputed
professional institutes to expand such professional and technical programs at provincial level to increase
the number of qualified professionals and technical assistants in our country. I encourage the formation of
corporate entities to be engaged in Business Process Outsourcing in human resource management,
finance and accounting, law and procurement etc. and deliver high quality services to global customers.
A 5-year half tax holiday will be given to promote the formation of such new partnerships or firms to be
engaged in international services. Personal income taxation of professionals will be further simplified to
ensure that income derived by highly demanded professionals will not be taxed excessively. I also
propose to give a 10 percent discount on the total tax payable on the importation of a motor vehicle by
any such professional who earns foreign exchange in excess of US$ 100,000 per year for a consecutive
period of 3 years to popularize the promotion of such services in Sri Lanka.


34.0 IT Industry Development



34.1 Honourable Speaker, the Government efforts to promote IT as a major industry in Sri Lanka during last

8 years has helped to raise its foreign earnings to about US$ 600 million, create around 70,000 well paid
employment opportunities and the country is rapidly shifting towards the use of internet in day-to-day
20
life. The improvement achieved by Sri Lanka in the Global Competitive Index ranking, as the 68
th
out of

144 countries is a reflection of these developments. Our vision over the next three years is to lift Sri
Lanka into the category of ‘Top 30 Countries’ and to double the foreign earnings as well as
employment opportunities in this industry.


34.2 The Government has attached significant importance for reforms in the entire education system, to
increase science and technology subjects in the main stream of education and to enhance labour force
capabilities through skills development under tertiary education, to be able to meet the demands of the
ICT industry. It is proposed to develop an ICT Zone at Hambantota as the emerging ICT Hub of South
Asia, capitalizing on the newly built infrastructure such as the Port, Airport, expressway and the railway
network, by promoting investments in this zone.


34.3 In order to further support this industry, various anomalies in taxation pertaining to IT related items
such as multifunctional printers will be corrected. The new Revenue Protection Order provides a better
classification for IT and IT related products under a single tariff band with reduced rates of import duty. I
also propose to remove the prevailing anomalies relating to VAT on hardware and software and
further simplify taxation. I propose to allocate Rs.1,000 million to implement a 3 year program inclusive of
the expansion of Nanasala centers with reading facilities in the villages, in line with the new IT policy
strategy of the Government. The transformation of public institutions by introducing web based facilities to
enable the provision of public services such as issuance of construction permits, land and property
registration, investment approvals etc. on line, is a major component of this reform agenda.


35.0 Shipping Economy



35.1 Honourable Speaker, we are in the process of procuring several ships to expand Sri Lanka Shipping
Corporation and to improve shipping related capabilities of the country. I also propose to expand
maritime education to ensure professional and skills development required to improve the shipping
industry. As such, tax credit will be given to all local ship operators as well as shipping agents for
foreign ships who engage in training and professional development activities in the shipping
industry. To boost related activities, I propose that services related to the shipping industry will be taxed
at 12 percent on par with the tax rate applicable to export income earnings. A separate allocation will be
provided to set up a state-of-the-art Ocean University to award degrees etc. in a range of subjects and
skills associated with maritime education. In order to promote the shipping economy in a more
structured manner, I also propose to set up a fully pledge Merchant Shipping Authority by introducing
timely amendments to the Merchant Shipping Act. In order to prevent monopoly pricing in the shipping
trade, no shipping line will be permitted to levy terminal handling and other charges in addition to
freight and specified international charges for container cargo. Relevant prohibition will be made
effective through amendments to the Finance Act, effective from January 2014.
21
36.0 Aviation Connectivity



36.1 SriLankan Airlines and Mihin Lanka are implementing a network expansion strategy to connect Sri Lanka
as a transit hub to Europe, Africa, Middle East and the Asia Pacific region. The two international
airports provide critical infrastructure and strategic locational advantage. Aircraft overhauling and
maintenance, aviation fuel supply, ground handling, air cargo and catering facilities are being expanded at
both airports to transform them to be safest airports capable of providing aviation facilities in line with
international aviation requirements. I propose to set up to a new corporate body to provide
aviation related activities such as airline catering, supply of aviation fuel, cargo and ground handling in a
coordinated manner while also being competitive. I propose that aviation services and related activities will
be treated as exports for VAT and be exempted from NBT to encourage backward integration of the
aviation industry with the local economy. World reputed international Airlines are being encouraged to
complement network operations of the national career. The Aviation Academy is being developed as a
state-of-the-art training center to provide professional education in aviation.


37.0 A National Science Center



37.1 Honourable Speaker, it has been recognized that the establishment of a National Science Center is
essential to promote the scientific knowledge required for the advancement of our society. The setting
up of this center will enable Sri Lanka Advance Science Organization, education ministries, universities
and the National Science Foundation to enhance science and technology knowhow among our people
and also to motivate our youth to pursue studies in related streams. I propose to seek foreign assistance
for this venture since it should be done according to international standards.


38.0 Incentives for Housings for Professionals


38.1 Housing needs of professional categories such as medical consultants, legal counsels, engineers,
architects, accountants, business executives, primarily engaged in urban services have increased and
time has come to encourage them to get together in small groups and develop housing schemes that suit
their needs. Hence, I propose to recognize loan repayments up to Rs. 50,000 per month for such house
building arrangements to be treated as a special qualifying payment in the payment of tax. Profit tax of
banking and financial institutions with regard to related financial facilities will be given a half tax
holiday. Stamp duty on the purchase of land for such housing complexes will be reduced by 25 percent. I
propose to keep these incentives for a period of 7 years.


39.0 Greater Colombo Flood Protection Initiative



39.1 Honourable Speaker, frequent floods, run down water lands and canal system, effects of increased
pollution and unplanned building of residential and business units remain major barriers to be able to
tap the full potential of Greater Colombo for economic development. The Government has already
mobilized the support of several Development Partners to support the initiative to address these
concerns. Under this program, development of drainage systems, rehabilitation of the canal system,
22
improving the environment of Colombo and the surrounding residential areas are being done in an
accelerated manner. The development of Weras Ganga, Kalu Oya and the Hamilton Canal has been
undertaken for the promotion of bio diversity, creation of urban forestry, bird sanctuaries,
environmental parks, community and children’s parks, self-employment market centers for small
traders, vehicle parks etc. that form critical elements of this development initiative. I propose to raise the
allocated funds to the Land Reclamation and Development Corporation within the 2014-16 Medium
Term Budget Framework to ensure that Greater Colombo area will be free from floods and
environmental hazards.


40.0 Township Development Program



40.1 Urban development initiatives of the Government have gathered a new momentum. These public
investment initiatives which are funded with domestic finances along with foreign finances from the
World Bank will be extended to cover greater townships of Kanday, Badulla, Kurunegalla, Galle,
Ratnapura, Anuradhapura, Jaffna, and Trincomalee. The Southern Expressway and the proposed
Northern, Kandy and Ratnapura Expressways that are due to commence construction next year will
connect neighboring semi townships, to universities, teaching hospitals, tourist zones, investment zones,
ports and airports, while also providing a wide range of services.


40.2 Honorable Speaker, at present nearly 50,000 families live in the Colombo City area without proper
housing and many of them live in congested and unhealthy living environments. In particular, children,
women, elderly and the differently abled persons in these shelters do not have appropriate living
conditions. Yet, these people form the urban workforce engaged in small businesses and they make a
valuable contribution to the economy. I propose to implement a two-pronged strategy to solve their
urban related problems within the next three years. First, is to accelerate the 2012 Budget initiative to
upgrade and modernize existing housing schemes established several years ago in different parts of
Colombo and the suburbs. The Maligawattta and Zoysapura housing schemes have been already
modernized satisfactorily. I propose to raise the Budget allocation of Rs. 1,200 million earmarked for
2014to Rs. 2,000 million to make a similar transformation in all other housing schemes. I also propose to
provide a further Rs.500 million to double the housing construction program undertaken by the
National Housing Development Authority for low income people.


40.3 The second is to construct 50,000 new housing units in 15 locations to house all families currently
living in temporary shelters. In the development of these townships, it will be guaranteed that nobody
will be moved out of Colombo in the resettlement process. The implementation of this strategy will be
undertaken to be executed on an integrated approach while harmonizing with the ongoing development
initiatives to improve water supply and sanitation, city modernization initiative, Greater Colombo
environment conservation initiative, North Colombo - Negombo Hamilton Canal transformation
initiative, Port City and Dehiwala Mt- Lavinia coast development initiative. These overall Greater
Colombo development initiatives will promote private investments in property development, hotels and
restaurant facilities, market places, transport, finance and logistic industries and new businesses for
23
SMEs. As this initiative is expected to be implemented through local construction companies, those
involved in the construction industry related building material manufacturing and service activities will
have a grater opportunity to expand their investments over the next three years and will also result in
boosting income and employment opportunities for our people.


41.0 Plantation Housing



41.1 Honourable Speaker, since 2005, our government has not let the plantation workers to be a lagging
community. Due to measures so far taken, all their basic health and education indicators have improved.
The maternal mortality rate has declined to 2 per thousand births and the no-schooling rate has dropped to
8.8 percent. The immunization rate of children is almost 100 percent. Upgrading their housing and
sanitation facilities will improve their living conditions considerably. Hence, I propose to construct
housing complexes with 50,000 housing units to replace poor quality housing available in the plantation
sector. The construction of these houses with sanitation and other utilities will require considerable
engineering supervision. I propose, to float a US$ 750 million long-term international bond for the
construction of urban and estate housing complexes through the Urban Development Authority which
will be backed by a Government Guarantee, along with a further US$ 750 million for the Government to
finance counterpart funds required for various development projects.


42.0 The 1,000 Village Connectivity Program



42.1 Honourable Speaker, road development initiative of this Government has connected all major
townships, airports, ports and our economy as a whole, with the rest of the world. It is necessary that
our road network program now expand to fill the remaining gaps in connecting all our villages to create
one connected nation. Our people can benefit from the widespread network of schools, hospitals and
public and private service stations only if proper access is established through transportation. Therefore, a
US$ 1,200 million credit facility has been mobilized from the Asian Development Bank to connect the
national road network to provincial and Pradesheeya Sabha roads including many feeder roads, that will
provide accessibility to 1,000 most populace villages commencing 2014.The Road Development
Authority will ensure all such roads will become connected feeder roads that will provide improved
access to at least 200,000 households.


43.0 Strengthening Finance Companies and Banks



43.1 Honourable Speaker, The performance of the Central Bank of Sri Lanka in managing external reserves,
various funds, the money supply and the supervision of banking and financial institutions in recent
years, has be exemplary. Considering Central Bank’s responsibilities and the recent trends in the
economy, I propose to increase its capital to Rs.50 billion. At present our country has 58 Finance
Companies, out of which only 20 have an asset base over Rs. 20 billion. Some of them are owned by
banks. Therefore, I propose that any finance company which is a subsidiary company owned by a main
company, be absorbed by the main company to consolidate their operations. I also propose that banks,
24
which have finance companies to consolidate their operations by acquiring the finance companies
within the group to further strengthen the banks. In support of this initiative, I propose to give
qualifying payment status for acquisition expenditure of banks or companies, if they have acquired any
finance company. As a part of financial sector strengthening, I propose to encourage development banks to
merge and I also propose to improve the Credit Information Bureau to facilitate both banks and
customers.


44.0 Debt and Equity Market



44.1 I introduced several incentives in the 2013 Budget to promote the debt and equity market and market
facilitators in our country. Following this, the market has consolidated and steadily expanded. Market
capitalization too has increased to nearly 30 percent of GDP. Many companies have commenced listing
of their shares and debt and are gaining momentum. As an incentive to business enterprises engaged in
banking, finance, insurance and manufacturing activities liable to high profit tax at 28 percent, I propose to
offer a half tax holiday for a period of 3 years, to any such Company that lists its shares in the
Colombo Stock Exchange in 2014.


45.0 Legal and Judicial Reforms



45.1 Honourable Speaker, our country has a sound constitutional and legal framework nurtured by our own
laws and practices as well as by laws etc. of advanced countries. If such legal framework is to operate
efficiently in the interest of economic and social advancements, the adoption of technology and other
modern facilities should be suitably done in the management of court proceedings, record keeping etc. It is
equally important to develop professional standards and carrier prospects of judicial officers. Along with
these measures, the strengthening of the Attorney General’s Department, Legal Draftsman’s
Department, Legal Aid Commission, Human Rights Commission, Legal Divisions in Government
agencies, Legal Aid Commission, Human Right Commission and the Commission to Investigate
Allegations of Bribery or Corruption is also important to facilitate the orderly functioning of the
administrative system. It is necessary to promote confidence and respect to law and order as well as to
the related institutions.


45.2 In this background, I propose to implement a 5year legal and judicial reform initiative to
comprehensively modernize the sector. We intend to update procedural aspects of Courts to reduce law
delays and also to minimize transaction costs to the people. Assistance has been requested from the
World Bank for the implementation of a reform initiative including the support for the development of an
International Arbitration Center in Colombo, to set up dedicated Courts to deal with high value tax and
financial matters to facilitate expeditious resolution of business disputes and ensure that that there will
be no denial of revenue to the Government due to laws delays. As a step towards improving
professional attraction to the judicial service, I propose to increase the Personal Allowance of Judges by a
further 8 percent.
25
46.0 Towards Simplification of Governance


46.1 A major findings from the Deyata Kirula mobile services conducted at field level is that the prevailing
regulations connected with the State Lands Ordinance, Agrarian Development Act, Fauna and Flora
Protection Ordinance, Consumer Protection Authority Act, Motor Traffic Act etc. have caused
considerable difficulties with regard to ordinary transactions undertaken by the people. These complex
and sometimes contradicting legal and regulatory provisions have often affected the efficient
performance of public servants. I propose to appoint a Cabinet Sub Committee to simplify these
regulations primarily to make the day-to-day transactions conducted by people more efficient. The new
Financial Regulations to streamline financial discipline of the Government will also be issued shortly.


47.0 Strengthening the Police Service



47.1 The enforcement of law and order requires a professionalized police service. The responsibilities of the
Police Service have increased with rising traffic volumes, crimes, tax and financial frauds, illicit liquor
and drugs business and also due to the gradual taking over of civil security responsibilities in the North. In
order to update their remuneration, the Service Specific Allowances were increased in 2013 as they had
not been revised for 20 years. Arrangements have also been made to provide technical equipment and
mobile vehicles to make traffic police services more efficient and effective. I propose to expand
facilities at the National Police Academy to train and develop professional standards of police officers. I
also propose to build three new housing complexes in the greater Colombo area, to solve the housing
problems of police officers working in Colombo.


48.0 Proposals of People’s Representatives



48.1 Honourable Speaker, pre-budget consultations with the Deputy Ministers and Members of Parliament,
enable us to localized priorities in their electorates. Their proposals were broadly concerning minor
irrigation projects, agricultural roads, schemes to provide protection from wild animals, buildings and
sanitation requirements of rural schools, access roads to plantation and remote areas, setting up market
places, fisheries harbour and anchorages, lagoon rehabilitation, crematorium facility improvements etc. I
believe that the completion of these projects in recognized areas based on priorities, will add greater
value to the various development projects that have been already undertaken all over the country. I
propose to allocate Rs. 4,000 million to implement these small and medium special development projects
under the supervision of a special task force.


49.0 2017 - Asian Youth Games



49.1 Honorable Speaker, our country is privileged to be selected to host the 3
rd
Asian Youth Games in
Hambantota in 2017. This is an international multi-sport event that will mobilize 5,000 athletes from
around 45 nations to one common platform. I intend to mobilize our youth from all corners of Sri Lanka
for this international event, further consolidating our national reconciliation efforts. Therefore, I propose to
provide Rs.500 million in 2014 for the commencement of the preparation of our school children,
26
athletes, youth and sports clubs to take part in this multi-sport event by utilizing the already built sports
infrastructure available across the country. I also propose to offer tax and other incentives to
international sports establishments to relocate their head office or regional offices in Sri Lanka.


50.0 Empowering the Youth



50.1 Honourable Speaker, it is necessary to inculcate teamwork, a collective sprit and to build up self -
confidence among our youth. Leadership qualities and sensitivity to social values must also be
cultivated. The leadership training initiatives of universities, National Youth Corps and National Youth
Services Council have shown successful outcomes. The Youth Parliament helps to develop leadership
skills among youth with democratic values. At the Youth Forum of the 2013 Commonwealth Heads of
Government Meeting, our youth made an impressive participation. Therefore, I propose to raise
allocations for youth programs by Rs.150 million. The 2014 United Nations World Youth Conference to
be held in Hambantota will provide a unique opportunity to us to project those admirable qualities of
the Sri Lankan youth. I propose to allocate Rs. 250 million for the implementation of special programs to
encourage the participation of our youth at this conference.


51.0 Public Servants



51.1 The Public Servant salary structure was rationalized in 2006 on the basis of a 1to 4 ratio. A Cost-of-
Living-Allowance and other allowances were granted to all public servants annually thereafter, to
increase their emoluments. Various anomalies were corrected and arrears were paid. Vacancies were
filled and new recruitments were made to improve the service delivery.


51.2 There is an urgent need to formulate a National Wage Policy as the difference between the private sector
and the public sector, as well as state enterprises and government services have widen. There are also
collective agreements that govern salaries of certain Government agencies as well as private enterprises.
Pensionable services as well as Provident Funds have also expanded. Although, I proposed a
contributory pension scheme, it could not be implemented as certain people opposed it. Those who
opposed it now want the Government to implement it. There are requests from certain public servants to
add the prevailing allowances to the salary structure. This will create anomalies among pensioners. All
these concerns must be carefully examined before we adopt a new pay structure for the next several years.
I have appointed a Pay Commission to look into all these concerns and formulate a new pay structure
for the Public Service. I hope to implement such recommendations no sooner they are made.


51.3 However, as done in my previous Budgets, I propose to increase the Cost- of-Living-Allowance to all
Public Servants by Rs.1,200 per month, from January 2014. I also propose to increase the Cost-of-Living-
Allowance to pensioners who retired before 2006 by Rs. 600 and by Rs.400to others. I request Private
sector employers who do not adjust salaries of employees in line with the Cost- of-Living- Allowance, to
suitably increase the wages of their employees.
27
52.0 Conclusion



52.1 Honourable Speaker, our country which is emerging as a strong middle income economy in the Asian
region has reached a unique crossroad. The solid consolidation of security, peace and democracy is
admirable. It is impressive. The rapid transformation witnessed in infrastructure is investment
friendly. The attraction of our country has been further enhanced by the enthusiasm being demonstrated
by the new generation in education and skills development and the shift towards science, technology
and research based production. Blessed by a well-connected regional growth, agriculture and irrigation
has nurtured the self-sufficient agrarian economy, while ensuring food security and creating ample
livelihood opportunities for them. Consequently, poverty - a social and economic injustice- is fast
depleting in our country.


52.2 The task ahead of us now is to accelerate economic development, to be able to address the emerging
aspirations and goals of particularly our low and middle income people. In this development process,
their aspiration will be to shift towards better health and education. Better standards in housing and
healthy living will be their desired goal. Our rural farmers want access to irrigation, transport facilities
and widespread urban-rural integration that promotes a value chain, with better markets for their farm
products. We need to develop urban settlements and transport that will be capable of providing decent
living for our urban work force. Nutritional deficiencies and concern of the differently abled, should
also receive priority attention.


52.3 I believe that the crossroad we have reached is a unique opportunity for us to take a leap towards
fulfilling the aspirations of our people. That is why we cannot afford to let go this opportunity we have
got to create a strong future for our future generations. Although we have defeated terrorism on the
ground, the forces that were behind remain to be active. That is a main obstacle for the promotion of
peace and national reconciliation and to strengthening international cooperation. Winning future
challenges by overcoming these obstacles remains to be our national responsibility. Therefore, on
behalf of the future generation, I invite all of you to work together towards social and economic
development, while consolidating national unity.


52.4 Honourable Speaker, I table all details of revenue and expenditure proposals and the relevant reports
required to be tabled in terms of the Fiscal Management (Responsibility) Act. I invite the Honourable
Members of Parliament to engage in a constructive debate on this Budget, and grant the required
approvals of Parliament.




May the Triple Gem Bless You!





















BUDGET SPEECH



2014













Technical Notes
and
a List of Reports/Documents
Submitted to Parliament
30
LIST OF REPORTS & DOCUMENTS

1. Fiscal Management Report 2014
Ministry of Finance and Planning - Department of Fiscal Policy

2. Budget Estimates (Volume 1, 2, 3) 2014
Ministry of Finance and Planning - Department of National Budget

3. Global Partnership in Development
Ministry of Finance and Planning - Department of External Resources

4. Recent Economic Developments: Highlights in 2013 and Prospects for 2014
Central Bank of Sri Lanka

5. Development Performance- Mid Year Review - 2013
Ministry of Finance and Planning - Department of Project Management and Monitoring
Refer -www.treasury.gov.lk

6. Unstoppable Sri Lanka2020 – Public Investment Strategy 2014-2016
Ministry of Finance and Planning – National Planning Department(submitted in
English)



TECHNICAL EXPLANATIONS:

7. Statistical Tables-(Department of Fiscal Policy and the Department of National Budget)
i. Expenditure Proposals -2014 Allocations to be made from Treasury Votes (Table I)
ii. The Proposals to broaden the tax base - 2014 (Table II)
iii. Gross borrowing requirements – 2014 (Provisioning for Accounting Transactions)
(Table III)
iv. Summary of the Budget (2009- 2014) (Table IV)

8. Technical Notes to the Budget Proposals
Ministry of Finance and Planning(Department of Fiscal Policy)(Annex 1)
(1) Income Tax- Amendments to Inland Revenue Act No 10 of 2006
(2) Value Added Tax –Amendments to Value Added Tax Act No 14 of 2002
(3) Nation Building Tax- Amendments to Nation Building Tax Act No 09 of2009
(4) Special concessions for professional services sector
(5) Cess
(6) Customs Duty
(7) Special Commodity Levy (SCL)
(8) Tariff Reductions under Free Trade Agreements
(9) Negative List of items for BOI approved Projects
(10) Depreciation Table for Used Motor Vehicles
(11) Ports & Airports Development Levy (PAL) – Amendments to the PAL Act No 18 of
2011
(12) Excise ( Special Provisions) Act No 13 of 1989
(13) Telecommunication Levy – Amendments to Telecommunication Levy Act No 21 of
2011
(14) Measures to improve tax collection and tax administration
(15) Insurance industry
(16) Technical rectifications
(17) Effective dates of proposals
31
Table I : Expenditure Proposals - 2014
Allocations to be made from Treasury Votes


Rs. Mn.


Proposals

Current
Capital
1 The establishment of National Community Water Supply Department and related
development work
- 300
2 Provision for revenue shortfall of the Sri Lanka Transport Board
500 -
3 Accelerated development of Uma Oya, Moragahakanda and Yan Oya irrigation schemes
- 14,000
4 Development of high quality seed and planting material
300 -
5 Modernization of agrarian service centers
- 300
6 Development of minor irrigation systems and abundant paddy lands
- 2,300
7 Incentives for agricultural field level officials
300 -
8 Lease subsidy for the provision of motor bicycles for field officials
2,000 -
9 Food aid to World Food Programme
- 3,000
10 Setting up of evolving funds for grain producing districts under District Secretariats
- 1,500
11 Soil conservation assistance to Small Tea Holders
- 200
12 Capital contribution for Farmers Pension Scheme
- 1,000
13 Agricultural research and laboratory facilities in universities located in Provinces
- 500
14 Development of Fishery Harbours and Anchorage facilities
- 1,000
15 Strengthening of Veterinary Service
200 -
16 Allowance for Veterinarians
50 -
17 Development of 1,000 bridges and upgrading road facilities of connected villages
- 4,500
18 Provision of small buses for remote villages
- 300
19 Coordination and supervisory allowance for District Secretaries, Divisional Secretaries,
District Planning Directors and District Chief Accountants

25

-
20 Modernization of vocational schools for disabled persons
- 100
21 Prevention of child abuse and violent against women
300 400
22 Strengthening of Local Government (Pradeshiya Sabhas)
1,400 2,000
23 Wildlife Conservation at selected Divisional Secretariat Divisions
- 1,000
24 Strengthening of Wildlife Department
- 200
25 Rural water purification project for North Central Province
- 900
26 Investment in non-communicable disease - Cancer, stroke and Kidney
- 2,000
27 Modernization of children hospital
- 1,000
28 Development of Colombo, Ragama , Kalubowila National Hospitals
- 12,000
29 Incentive payments for Hospital Staff
100 -
30 Performance art centers at Kandy and Anuradhapura
- 1,500
31 Modernization of Lionel Wendt, Lumbini Theater and Galle Townhall Theater
- 300
32 05 holiday bungalows for artists
- 150
33 Heritage conservation and promotion Initiative
- 100
34 Sanitary and other facilities in rural schools
- 1,000
35 Modernization of Maharagama and other Teacher Training Colleges
- 750
36 Pirivena Education
150 300
37 Skills education initiative
- 1,200
38 Incentives for Lecturers and students in vocational education
300 -
39 Expansion of new faculties at universities and quality improvement
- 2,000
40 Academic allowance for University Lecturers/ Professors
200 -
41 Development of Postgraduate Institute of Medicine
- 600
42 Research Allowance for Doctors and allowances for Medical Interns
1,400 -
43 Expansion of Nenasala centers and new facilities
- 1,000
44 Initial Capital for the establishment of a National Science Center
- 300
45 Greater Colombo Flood Protection Programme
- 1,500
32

46 Upgrading and modernization of housing schemes
- 800
47 Low Income Housing Development Programme
- 500
48 Legal and Judicial Reform
- 500
49 Personal allowances for Judges
25 -
50 Housing schemes for Police Service
- 1,500
51 Expansion of facilities at the Police Academy
- 500
52 Implementation of project proposals by People’s Representatives
- 4,000
53 Preparation of youth for the 2017 Asian Games
- 500
54 Allocation for youth development
- 150
55 Participation of the 2014 UN Youth Conference
- 250
56 Cost-of- Living Allowance for Public Servants
17,300 -
57 Cost-of- Living Allowance for Pensioners
3,300 -

Complied by the Department of National Planning and the Department of National Budget



Table I I : Proposals to Broaden the Tax Base - 2014


New Revenue Proposals

Rs. Million
1 Extension of NBT to banking and financial institutions 3,665
2 Strengthening the application of Value Added Tax at supermarket and trade scale (Quarterly
turnover of Rs. 250 million and exemption limited to 25 percent of turnover)
15,000
3 Telecommunication Levy to be fixed at 25 percent 4,000
4 Revision in depreciation of motor vehicle for Customs Duty 2,000
5 Revision in CESS on Primary Commodity Exports and items vulnerable to undervaluation to
ensure domestic value chain
4,000
6 Revision in Special Commodity Levy / Customs Duty for the support of local value addition 12,750

Total 41,415
Complied by the Department of Fiscal Policy

Table I I I : Gross Borrowing Requirements - 2014
(Provisioning for Accounting Transactions)


Item

Rs. Billion
Total Revenue Receipts and grants 1,495
Total Payments Including Debt Repayments 2,599
Provision for Advanced Accounts Operations 4
Risk Provision on account of variation in receipts and payments 50
Contingent liability and issue of bonds for the Balance Sheet restructuring of SOEs 30
Adjustments for book / cash value of government securities 90
Total Gross Borrowing Requirement to be recorded in Government Accounts 1,278
Of which, Total Debt Repayments 589

Compiled by the Department of National Budget and Department of Treasury Operations
33


Revenue Surplus (+)/Deficit (-) / GDP (%) (3.7) (2.1) (1.0) (0.5) 1.1
Primary Surplus (+)/Deficit (-) / GDP (%) (3.4) (1.7) (1.1) (0.7) (0.8)
Budget Surplus (+)/Deficit (-) / GDP (%) (9.9) (8.0) (6.4) (5.8) (5.2)
Compiled by the Department of Fiscal Policy



Table IV: Summary of the Budget (2009-2014)

Rs. Billion

2009 2010 2012 2013

2014 Budget
Total Revenue and Grants
725.6 834.1
1,067.5 1,203.1
Total Revenue
699.7 817.2
1,051.4 1,183.1
Tax Revenue
619.0 724.7
908.1 1,052.2
Income Tax
139.6 135.6
172.5 239.5
Taxes on Goods and Services
316.0 435.4
519.6 578.4
Taxes on External Trade
163.3 153.7
216.6 234.1
Non Tax Revenue
80.7 92.5
142.5 130.9
Grants
25.9 16.9
16.0 20.0
1,469.5
1,437.4
1,274.6
283.3
688.5
302.6
162.8
32.0
Total Expenditure
1,201.9 1,280.2
1,556.5 1,712.4 1,985.6
Recurrent
879.6 937.1
1,131.0 1,224.9
Salaries and Wages
271.2 300.6
347.7 391.4
Other Goods and Services
108.5 87.7
140.0 132.2
Interest
309.7 352.6
408.4 444.8
Subsidies and Transfers
190.2 196.2
234.6 256.4
Public Investment
330.4 356.5
443.9 503.9
Education and Health
30.5 32.4
46.1 55.5
Infrastructure
299.7 324.1
397.9 448.4
Other
(8.1) (13.4)
(18.4) (16.4)
1,328.3
410.6
191.8
441.0
284.7
668.5
74.1
594.4
(11.1)
Revenue Surplus(+)/Deficit(-)
(179.9) (119.9)
(79.5) (41.7)
Budget Deficit Surplus(+)/Deficit(-)
(476.4) (445.9)
(488.9) (509.2)
109.2
(516.1)

Total Financing
476.4 445.9
488.9 509.2
Total Foreign Financing
83.9 194.9
180.7 149.8
Foreign Borrowings-Gross
194.2 269.9
364.6 247.1
Foreign Borrowings
136.8 158.0
234.4 247.1
Foreign Commercial
57.4 111.9
130.2 0.0
Debt Repayments
(110.3) (75.1)
(183.8) (97.2)

Total Domestic Financing
392.5 251.1
308.2 359.3
Non-Bank Borrowings
196.5 204.1
70.9 104.7
Foreign Investments in T-Bills and T-Bonds
146.9 48.8
105.6 53.2
Bank Borrowings
49.0 (1.9)
131.5 201.4
516.1
235.5
331.5
234.0
97.5
(96.0)

280.6
129.3
51.3
100.0
Revenue and Grants/GDP (%)
15.0 14.9
14.1 13.8
Revenue /GDP% 14.5 14.6 13.9 13.6
Tax/GDP (%)
12.8 12.9
12.0 12.1
Expenditure/GDP (%)
24.9 22.8
20.5 19.7
Current Expenditure/GDP (%)
18.2 16.7
14.9 14.1
Public Investment/GDP (%)
6.8 6.4
5.9 5.8
14.8
14.5
12.8
20.0
13.4
6.7






34

Technical Notes
Budget Proposals 2014 – Taxation
1 Income Tax ( Amendments to the Inland Revenue Act No 10 of 2006)
1.1 Exemptions/ Taxation at concessionary rates
1.1.1 Exemptions
1.1.1.1 Institutional Exemptions
Annex 1
Profits and income (other than income from dividends and interest) of the following
institutions will be exempt from income tax :
(a) National Enterprise Development Authority established under the
National Enterprise Development Authority Act No 17 of 2006;
(b) Sri Lanka Institute of Marketing incorporated under the
Sri Lanka Institute of Marketing Act No 41 of 1980 ;
(c ) The Institute of Physics Sri Lanka incorporated under the Institution of
Physics Sri Lanka (Incorporation) Act No 12 of 1986.
(Section 7 of the Inland Revenue Act will be amended).

1.1.1.2 Source wise Exemptions
(a) Marginal relief to employees having other income not taxable at source
as final tax :
Profits and income not exceeding in the aggregate of
Rs.48,000/- for any year of assessment, other than any employment
income, or any profits or income which is taxable at source as final tax, of
any employee who is not engaged in any trade, business, profession or
vocation, if tax is deducted from his employment income for that year of
assessment.
(Section 8 of the Inland Revenue Act will be amended).

(b ) Profits and income arising or accruing to any company, partnership or
body of persons outside Sri Lanka , from any payment made for the use of
any computer software , by
Sri Lankan Air lines Limited or Mihin Lanka (Pvt) Ltd, as a special
requirement of such Airlines, if a Double Taxation Avoidance Agreement
providing relief for double taxation of such profits is not in force between
Sri Lanka and the other country or tax is not payable in that country on
such profits or income.
(Section 13 of the Inland Revenue Act will be amended).

(c) Dividends distributed out of exempt dividends received by a company on
investment made outside Sri Lanka as referred to in section 10(1)(j) of the
Inland Revenue Act, if such distribution is made within one month of
receipt of such dividends
(Section 10 of the Inland Revenue Act will be amended).

1.1.2 Concessionary rates
1.1.2.1 The present concessionary rate of 12% applicable to profits and income from the
supply of certain services to garment exporters will be extended to cover services
provided to:
- exporters of goods or services; or
- the foreign principal directly
being services which could be treated as essentially related to manufacture of
such goods or provision of such services and the payments for such services are
made by the exporter or the foreign principal to such supplier of services, in Sri
Lanka, in foreign currency.
The present exemption applicable to profits and income earned in foreign
currency for the provision of services to a person outside Sri Lanka (to be utilized
outside Sri Lanka) referred to in section
13 (ddd) of the inland Revenue Act will remain as is it.
(Section 58 of the Inland Revenue Act will be amended).

1.1.2.2 The applicability of section 51 and section 52 of the Inland Revenue Act proving
for concessionary rate on qualified export profits will be extended.
(Sections 51 and 52 of the Inland Revenue Act will be amended).

1.1.2.3 To maintain the uniformity of the application of concessionary rates applicable
to various sectors, the current 10% rate for undertakings with annual turnover
not exceeding five hundred million rupees will be revised to 12%.
(Section 59B and the Fifth Schedule, of the Inland Revenue Act will be amended).
35
1.1.2.4 Tax rates for professionals (providing professional services )
To remove the applicability of deferent rates of taxes on the income from
professions tax rate on such income will be reduced as follows :

Income from profession Maximum rate of tax
Does not exceed Rs 25Mn 12%
Exceeds Rs 25Mn but does not exceed
Rs 35 Mn
14%
Exceeds Rs 35 Mn 16%
(Relevant sections and the Rate Schedule will be amended).

1.1.2.5 Concessionary rate on employment income of professional as an employee
The maximum rate of income tax applicable on employment income of
professionals will be reduced to 16%.

For this purposes employee means a medical doctor, engineer, architect, lawyer,
pilot, navigation officer, software engineer, accountant recognized as a member
of a recognized professional body, and a researcher or senior academic
recognized as an accredited professional.

1.1.2.6 Considering the concessionary rates applicable to SME sectors and the other
identified sectors (including companies ), the lower rate of tax applicable to
companies with taxable income not exceeding 5 million rupees will be removed.

(Second Schedule of the Inland Revenue Act will be amended).

1.1.2.7 The period for listing of shares of a company with an issue of not less than 20%
to the general public for the application of the half of the applicable rate as
referred to in section 59D of the Inland Revenue Act, will be extended to a
further period of three years, if such company is paying corporate income tax on
the profits at 28% or more.

(Section 59D of the Inland Revenue Act will be amended).

1.2 Deduction from the remuneration from employment

1.2.1 The limit of monthly receipts, by an individual employed in the public sector under more than
one employer, for the application of 10% rate will be raised to 50,000.

1.2.2 Where an individual is employed under more than one employer or serving in different places
and receiving any benefit from the private use of a motor vehicle provided by the employer or
any allowance from more than one employer or from more than one place, then the excess of
aggregate of such benefits or allowance over fifty thousand rupees will form part of such
employee’s employment income liable to tax.

(Section 117A of the Inland Revenue Act will be amended).


1.3 Restriction on the applicability of tax holiday and qualifying payments

1.3.1 The exemption under section 22 of the Inland Revenue Act will be restricted to investments
made prior to 1.4. 2014.

1.3.2 The deduction of the investment for expansion of an existing undertaking as qualifying
payments referred to in paragraph (s) or paragraph (t) of subsection (2) of section 34 will be
restricted to such investments made prior to April 1, 2014.

1.3.3 In view of the applicability of lower tax rates to various sectors and accelerated depreciation
allowances together with deductibility of expenses such as research & Development, opening up
expenses etc., the prevailing minimum investment and the corresponding period of tax
exemption will be further rationalized.

(Sections 16C, 16D and 17A will be amended.)
36
1.4 Revision of the definition of “ executive officer” for tax purposes

The monthly emoluments for the purpose of definition of an “executive officer” will be revised from Rs
25,000/- to Rs 75,000/-.

(The definition of the “executive officer” in section 217 will be amended).


2 Value Added Tax (VAT) [ Amendments to VAT Act No 14 of 2002]

2.1 A New VAT Act will be introduced effective from 1.1.2014 codifying the amendments made to that Act up to
2013 and the amendments arising from the Budget 2014 proposals.

2.2 Exemptions
2.2.1 The present exemption available to telecom industry on the import or local purchase of any
machinery or high tech equipment for telecom industry will be expanded to cover the import or
local purchase of copper cables, subject to the same conditions specified in item (xx) of paragraph
(a) of PART II of the First Schedule to the VAT Act, so far as such copper cables are used for the
infrastructure development of the industry.

The exemption for importation will be available only if such cables are not available in Sri Lanka
up to the required quality and the quantity.

2.2.2 The present exemption applicable on the import of gully bowsers, semi- trailers for road tractors,
any machinery or equipment used for garbage disposal activities carried out by any local
authority, for the purposes of provision of such services to the public as approved by the
Secretary to the relevant Ministry, will be expanded to cover the exemption on such items, for
purchasing of such items from local manufacturers as well, subject to the same conditions.

2.2.3 Import or supply of following goods will be exempted from VAT :

(a) Ties and bows under HS Code Nos 62.15.10, 62.15.20, 62.15.90
(b) Designer pens under HS Code 96.08.30
(c) Frozen Bait , Fish Hooks/rods/reels , Fishing tackle under HS Code
0511.91.90,9507.10, 9507.20,9507.30 and 9507.90
(d) Marine Propulsion Engines under HS Code 8407.21, 8407.29.
(PART II of the First Schedule of the Value Added Tax will be amended)
2.3 Restrictions of Exemptions
2.3.1 The application of the exemption from VAT on goods subjected to Special Commodity Levy (SCL)
will be restricted to the VAT payable at the point of Customs only, in the case of any importer
whose value of supplies in the local market out of goods imported exceeds Rs 250 Mn for any
consecutive period of three months in a Calendar year.

Accordingly, the local supply of such goods referred to in item (xiii) of paragraph (b) of PART II of
the First Schedule, will be subjected to VAT, if the total value of supply of the import of such goods
for any consecutive period of three months of any calendar year exceeds Rs 250 MN.

2.3.2 The exemption on the import or supply of such imported goods set out below will be removed:
2.3.2.1 Paddy, rice, wheat, cardamom, cinnamon, cloves, nutmeg, mace, pepper, desiccated
coconuts, rubber, latex, fresh coconuts, tea including green leaf, rice flour, wheat flour,
bread, eggs , liquid milk or powdered milk ;

2.3.2.2 Agricultural tractors or road tractors for semi-trailers under HS Code Nos 8701.10.10,
8701.10.90, 8701.20.10, 8701.90.10 8701.90.20 ;

2.3.2.3 Machinery and equipment for the tea and rubber industry under HS Code Nos
8438.80.40, 8429.10 ;

2.3.2.4 Machinery for modernization of factories by the factory owner;

2.3.2.5 Plant and machinery by an undertaking qualified for a tax holiday under section 24C of
the Inland Revenue Act No 10 of 2006;

2.3.2.6 Pharmaceutical preparations falling under HS Code Nos3003.90.11, 3003.90.12,
3003.90.13, 3003.90.15, 3003.90.19, 3004.90.11,3004.90.12, 3004.90.13, 3004.90.15, or
3004.90.19
37
2.4 VAT on wholesale and retail businesses

2.4.1. The present threshold of quarterly value of supplies of any person or partnership carrying on a
business of wholesale or retail trade for the chargeability to VAT , will be reduced from Rs 500Mn
to Rs 250Mn .

Whether a subsidiary or associated company of a group of companies, engaged in a wholesale or
retail sale has reached the liable threshold for any quarter will be determined based on the
aggregate value of supplies of each company in the group ,engaged in such trade , for that quarter .

2.4.2. The exemption applicable to the supply of goods specified in PART II of the First Schedule will be
subjected to a maximum of 25% of the total supplies, in the case of a wholesale or retail business
which supplies goods liable to VAT and goods exempted from VAT.

The input tax credit attributable on such liable supplies (if any), due to this adjustment will be
allowed as referred to in section 22 .
( Section 3 ,section 8 and section 22 of the VAT Act will be amended)

2.5 Expanding the definition of international transportation

The present definition will be expanded to cover the services directly related to transportation of goods or
passengers between international Air Ports situated within Sri Lanka.

2.6 The contribution to the VAT Refund Fund
The percentage of the contribution to the VAT Refund Fund by the Director General of Customs out of the
VAT collected on the importation of goods into Sri Lanka will be reduced from 10% to 6% considering the
reduction of refund claims due to the implementation of the SVAT Scheme.

( Section 71(2) of the VAT Act will be amended w.e.f 1/4/2013)

3 Nation Building Tax (NBT) [ Amendments to NBT Act No 9 of 2009]
3.1 Exemptions
3.1.1 Retail trade of goods at duty free shops for payment in foreign currency.

3.1.2 Sale of locally manufactured coconut oil by the manufacturer, for a period of three years

3.1.3 Distribution of LP Gas

3.1.4 Services provided in any Airport for payments in foreign currency

3.2 Restriction of exemptions

3.2.1 The application of the exemption from NBT on goods subjected to Special Commodity Levy will
be restricted to NBT payable at the point of Customs only.

Accordingly, the local supply of such goods will be liable to NBT.

{Subsection (2) of Section 3 of the NBT Act will be amended}

3.2.2 The exemption of financial services from NBT will be terminated in view of the withdrawal of
the requirement of depositing funds in the Investment Fund Account.

3.2.3 The exemption on the turnover on the sale of tractors will be restricted to locally manufactured
tractors only. The importation of tractors falling under HS Code Nos8701.10.10, 8701.10.90,
8701.20.10, 8701.90.10 8701.90.20 will be liable to NBT.

3.2.4 Pharmaceutical preparations falling under HS Code Nos .Nos 3003.90.11, 3003.90.12, 3003.90.13,
3003.90.15, 3003.90.19, 3004.90.11, 3004. 90.12, 3004.90.13, 3004.90.15, or 3004.90.19 will be liable
to NBT at the import point.

( PART I of the First Schedule to the NBT Act will be amended )
38
4 Special concessions for professional service sector

4.1 Relocation of International Headquarters or Regional Head Offices

To promote the establishment by relocating in Sri Lanka the Headquarters or Regional Head offices
of institutions in the international network , the following concessions will be accorded:
(a) Income tax holiday for a specific period;
(b) Deduction of special expenses connected with the incorporation of such Headquarters or
the Regional Head offices ;
(c ) Relief for payment of VAT and NBT on receipts in foreign currency.

4.2 Construction of residential apartments for professionals

Where any individual engaged in any profession alone or together with such other individuals, sets
up a consortium with a bank and the construction contractors for the purpose of constructing a
Residential Apartment complex for their own residential purposes, then the following concessions
will be accorded:

(a) Bank providing loan facility will be taxed only at ½ of the applicable rate on the interest
on such loans granted to such individuals for that purposes.

(b) Qualifying payment of an amount not exceeding Rs 50,000/- per month on the capital
repayment will be allowed to be deducted in full by such individuals, on the respective
payment.

(c) Stamp Duty applicable on the deed of transfer of the property will be reduced by 25%
thereof.

( Section 13 and section 34 of the Inland Revenue Act and relevant provisions of the application of
Stamp Duty of the Provincial Council will be amended)

4.3 Concessions to promote acquisition of International Intellectual Properties with established
international brand names

The following concessions will be accorded to any establishment which acquires any
internationally recognized intellectual property and earns income in foreign currency by way of
royalty
(a) Total cost of acquisition will be allowed as a deduction for income tax purposes;
(b) The income earned in foreign currency will be exempted for a specific period of time ;

4.4. Concessions for creation of Corporate Entities by professionals:

The following concessions will be accorded to professionals who establish corporate entities to
provide international services :

(a) ½ of the applicable Corporate income tax rate for a period of 5 years on services liable
to tax ;
(b) Concessions of 10% of the aggregate taxes and duties on the importation of a motor vehicle
will be allowed, if more than US$ 100,000 per year is remitted to Sri Lanka in any
consecutive period of distinct 3 years.

4.5 Concession for skill development in the shipping industry
A deduction of 10% of income tax payable by a ship operator or any agent of a foreign ship will be
allowed in consideration of the provision of skill development in the shipping industry to trainees.

The criterion for the deduction will be decided based on the number of individuals trained.

4.6 Deduction of the cost of acquisition of financial institutions by way of merger or acquisition by
the main company which is a financing company

The cost of acquisition or merger of financial companies by the main company will be allowed for
deduction within 3 years of assessments.
39
5 Cess
5.1 Import Cess
Cess rates have been revised on following items to promote local value addition

Item HS Heading / HS Code
Cheese, Curd and similar products 04.04, 04.06, 04.08 and 04.10
Cut flowers, Foliage 06.03 and 06.04
Vegetables (Cabbages, Lettuce, Carrots, Cucumbers,
Leguminous vegetables, Tomatoes, and similar vegetables (
fresh, Chilled or cooked)
07.04,07.05, 07.06,07.07,07.08, 07.09,07.10, 07.11, 0712.31,
0712.32,0712.33,0712.39,0712.90.10, 20.01,20.02,20.04,20.05
Mushrooms and truffles 20.03
Manioc, Sweet potatoes and similar yams 07.14
Nuts and Fruits( Pineapples ,Avocados, Guavas, Mangoes,
Mangos teens, Citrus fruit ( except fresh Mandarins and
apples) , Melons, Papaws, pears, Apricots, Cherries,
Peaches and other similar fruits and nuts ( fresh, dried or
prepared)
08.01,08.02, 08.03, 08.04, 08.05( except 0805.20.10)
08.06,08.07,08.08,08.09,08.10,08.11,08.12,08.14, 2006.00.10,
20.06.00.90, 20.07.91,20.07.99,20.08
Fruit juice 20.09
coffee, pepper, vanilla and cinnamon 09.01,09.04,09.05,09.06
Artificial Flowers 67.02
Mosquito coil 38.08.50.10
Wheat or Meslin flour 1101.00.10
Margarine or vegetable fats and poultry fat 15.01,15.09,15.10,15.17
Sausages and similar products 16.01,16.02,16.03
Sauces and preparations 21.03
Sugar confectionary 17.04
Chocolate and other preparations containing cocoa 18.02,18.03,18.04,18.06
Pasta and similar products 19.02
Cereals and similar products 11.04,19.04
Soups and broths and similar preparations 21.04
Ice cream and other edible ice 21.05
Waters including natural or artificial mineral waters 22.01 and22.02
paints and varnish 32.08,32.09
Beer made from malt, un denatured ethyl alcohol and
similar beverages
22.03,22.08
Vinegar 22.09
condles 34.06
battery 85.06.10
Josh Sticks 33.07.41
Portland cement in packing of 50 kg and below 2523.29.20
Gauze 3005.10, 3005.90 , 58.03.00
Soap and Face Wash 3401.11, 3401.19,3401.20 and 3401.30
Laminated Sheets 39.20
Sanitary napkins 96.19.00
Steel Products 72.04 ,72.14.20.90 ,73.06.30 ,73.06.69.90 ,73.06.90.90 ,
73.06.61.90, 73.14.20 ,73.14.31 ,73.14.41, 73.14.42, 73.14.49,
73.23
Aluminum bars and tubes 76.04, 76.08 ,76.10
Padlocks, hinges 83.01, 83.02.10, 83.05 ,83.06
Furniture 94.03
Brooms and Brushers 96.03
Rubber Machines and rubber products 4084.20.10.10.

Cess will be removed/revised on following items
Item HS Heading / HS Code
Tung oil 15.15.90.10
Paper board 48.11.51.10
Unbleached Fabric 52.09.11, 52.10.11, 52.11.11, 52.12.21, 58.02.11
Aluminum Wires 76.05.11
40
To promote branded items for international shopping Cess has been removed on the following items
Item HS Heading / HS Code
Designer Pens 96.08.30
Ties and bows 62.15.10 ,62.15.20 ,62.15.90

With the down ward revision of custom duty rates , with a view to make revenue neutral , Cess rates on imports
have been adjusted.

5.2 Export Cess
To promote local value addition Cess has been introduced for following items
Item HS Heading / HS Code
Pepper 09.04.11.10
Cinnamon 09.06.11.10
Clove 09.07.10.10
Nutmeg and Cardamoms 09.08.11.10

6 Customs Import Duty
A four band tariff structure presently in place is further consolidated aligned with simplicity to facilitate
production and trade as follows;

Classification Customs Duty (%) No. of Tariff Lines
Essential inputs, not manufactured locally 0 3,376
Raw materials & semi raw materials 7.5 184
Intermediate goods 15.0 1,605
End user products 25.0 1,412

The following changes of Customs Duty are effective from 22
nd
November 2013.
IT/BPO sector
HS Code Customs Duty (%)
IT supportive printers
8443.31.10 Free
8443.31.90 Free
8443.32.10 Free
8443.32.20 Free
8443.32.90 Free
8443.39.10 Free
8443.39.90 Free
8443.99.10 Free

Optical fibre cables
8544.70 Free

Energy saving materials

HS Code Customs Duty (%)
Solar control films
3919.90.10 Free

Branded items for up market development
HS Code Customs Duty (%)
3303.00.10 7.5
9608.30 7.5
6215.10 7.5
6215.20 7.5
6215.90 7.5

Local value addition and backward integration with domestic value creation
Machinery and heavy industry

HS Code Customs Duty (%)
Tea machinery
8438.80.40 7.5

Tractors

8701.20.10 7.5
8701.20.20 7.5
8701.30.10 7.5
41

8701.30.20 7.5
8701.90.30 7.5
8701.90.40 7.5

Steel
7207.11.10 7.5
7207.20.90 7.5

Cement
2523.21 7.5
2523.29.10 7.5
2523.29.20 7.5
2523.29.30 7.5
2523.30 7.5
2523.90 7.5

Ayurdevic industry

HS Code Customs Duty (%)
2712.10 7.5
2712.20 7.5
2914.29.10 15.0
3301.25 7.5
3301.90.93 7.5
3301.90.96 7.5
3301.90.99 7.5

Fisheries industry
HS Code Customs Duty (%)
Frozen bait
0511.91.90 7.5

Confectionary industry

HS Code Customs Duty (%)
Flavours
2103.90.10 (new NSD) 15.0
2103.90.90 (new NSD) 15.0

Cocoa beans
1801.00.10 15.0
1801.00.20 15.0

Gold and motor vehicle imports
Gold
HS Code Customs Duty (%)
7108.11 7.5
7108.12 7.5
7108.13 7.5
7108.20 7.5
Diesel hybrid vehicles (new NSD)
HS Code Customs Duty (%)
8703.31.71 15.0
8703.31.79 15.0
8703.31.81 15.0
8703.31.89 15.0
8703.31.91 15.0
8703.31.92 15.0
8703.31.93 15.0
8703.31.94 15.0
8703.32.51 15.0
8703.32.52 15.0
8703.32.53 15.0
8703.32.61 15.0
8703.32.69 15.0
8703.32.72 15.0
8703.32.81 15.0
42
Item HS Code
Sprats
0305.59.20
Watana - whole/split 0713.10.10, 0713.10.20
Chickpeas - whole/split 0713.20.10, 0713.20.20
Green gram 0713.31.10
Canned fish 1604.11, 1604.12, 1604.13, 1604.14, 1604.15, 1604.16, 1604.17, 1604.19,
1604.20
Sugar 1701.12, 1701.13, 1701.14, 1701.91.10, 1701.91.90, 1701.99.10, 1701.99.20
1701.99.30, 1701.99.90

Maldives fish

0305.59.10

Dried fish

0305.59.90

Orange

0805.10.10
Coriander - neither crushed nor
ground or crushed or ground


0909.21, 0909.22
Cumin - neither crushed nor
ground or crushed or ground

0909.31, 0909.32

Fennel

0909.61.20
Turmeric - neither crushed nor
ground or crushed or ground

0910.30.10, 0910.30.90

Black gram flour

1106.10.10
Ground nuts 1202.42

Mustard seed

1207.50


8703.32.89 15.0
8703.32.91 15.0
8703.32.92 15.0
8703.32.94 15.0
8703.32.95 15.0
8703.32.96 15.0
8703.32.97 15.0
8703.32.98 15.0
8703.32.99 15.0
8703.33.51 15.0
8703.33.59 15.0
8703.33.61 15.0
8703.33.69 15.0
8703.33.72 15.0
8703.33.81 15.0
8703.33.89 15.0

Other Industries for local value addition
HS Code Customs Duty (%)
Boat manufacturing industry
8902.00 25.0
8903.10.90 25.0
8903.91 25.0
8903.92 25.0
8903.99.90 25.0
8904.00.10 25.0

Wheel barrows & parts
8716.80.20 (new NSD) 25.0
8716.90.10 (new NSD) 25.0

Gauze
5803.00 25.0
3005.10 25.0
3005.90 25.0

7. Special Commodity Levy Act No. 48 of 2007
The Special Commodity Levy is revised on import of following items:









,
43

Palm oil - crude and refined
1507.10, 1507.90, 1511.10, 1511.90.10, 1511.90.20, 1511.90.90, 1512.11,
1512.19, 1513.11.11, 1513.11.19, 1513.11.21, 1513.11.29, 1513.19.10,
1513.19.90, 1513.21, 1513.29
Salt 2501.00
Yoghurt 0403.10
Butter 0405.10
Margarine 1517.10.10, 1517.10.90

8. Tariff reductions under the Free Trade Agreements
Under South Asia Free Trade Agreement (SAFTA) and India - Sri Lanka Free Trade Agreement (ISFTA), 208 and 10
items are removed respectively from the negative list of Sri Lanka with effect from 22
nd
November 2013.

South Asia Free Trade Agreement (SAFTA)
For Least Developed Countries (LDCs)
0104.10, 0104.20, 0201.10, 0201.20, 0201.30, 0202.10, 0202.20, 0202.30, 0205.00, 0206.10, 0206.21,
0206.29, 0207.27, 0209.00, 0307.99, 0711.20, 0802.11, 0802.12, 0802.21, 0802.31, 0802.40, 0802.50,
0802.60, 0809.10, 0809.20, 0809.30, 0812.10, 0813.10, 0813.20, 0909.10, 0909.40, 0910.20, 1001.10,
1109.00, 1212.21, 1302.11, 1302.12, 1302.13, 1302.20, 1302.31, 1302.32, 1302.39, 1404.20, 1501.00,
1505.00, 1522.00, 1603.00, 1604.11, 1604.12, 1604.19, 1604.30, 1702.20, 1702.40, 1702.50, 1702.60,
2309.10, 2710.91, 2711.11, 2711.14, 2711.19, 2711.21, 2711.29, 2713.11, 2713.12, 2713.20, 2713.90,
2714.10, 2714.90, 2715.00, 4007.00, 4805.11, 4805.12, 4805.19, 4808.30, 4808.90, 4823.20, 6811.81,
7309.00, 7318.12, 7318.13, 7318.14, 7318.16, 7318.21, 7318.23, 7419.99, 7604.10, 7604.21, 8201.10,

8201.20, 8201.30, 8201.40, 8201.50, 8201.60, 8201.90, 8211.91, 8211.93, 8211.94, 8308.10, 8308.20,

8308.90, 8413.92, 8418.29, 8418.61, 8418.69, 8421.22, 8424.10, 8432.10, 8432.80, 8432.90, 8433.40,

8433.52, 8433.59, 8438.80, 8480.71, 8480.79, 8516.10, 8516.21, 8527.99, 8528.71, 8528.73, 8538.90,

8546.90, 8547.10, 9017.20, 9612.10, 9612.20


For all member countries
0804.20, 0810.40, 0903.00, 1008.30, 1214.10, 1901.10, 2005.91, 2523.21, 2523.29, 2709.00, 3907.50,
4002.99, 4105.10, 4106.21, 4106.31, 4106.32, 4106.40, 4106.91, 4201.00, 4202.11, 4202.12, 4202.19,
4202.21, 4202.22, 4202.29, 4202.31, 4202.32, 4202.39, 4202.91, 4202.92, 4202.99, 4203.10, 4203.21,
4203.29, 4203.30, 4203.40, 4205.00, 6402.12, 6402.19, 6403.12, 6403.19, 6404.11, 6811.82, 6913.10,
6913.90, 7015.10, 7114.11, 7114.19, 7114.20, 7215.10, 7215.50, 7215.90, 7303.00, 7313.00, 7318.24,
7615.11, 8212.20, 8215.10, 8215.20, 8215.99, 8414.59, 8418.21, 8421.19, 8423.90, 8424.81, 8433.51,
8504.22, 8516.79, 8517.69, 8527.13, 8527.21, 8527.29, 8536.70, 8536.90, 9004.10, 9004.90, 9608.91,
9615.11, 9615.19, 9615.90, 9616.10, 9616.20


Indo - Sri Lanka Free Trade Agreement (ISFTA)
Customs Duty on the following tariff lines in the negative list of Sri Lanka will be zero rated.
Item HS Code
Pectic substances, pectinates and pectates 1302.00
Agar-agar 1302.31
Mucilages and thickeners, whether or not modified, derived from
locust beans, locust bean seeds or guar seeds
1302.32
Pet food for retail sale 2309.10
Yarn used to clean between the teeth (dental floss) 3306.20
Trade advertising material, commercial catalogues and the like 4911.10
Corrugated sheets 6811.81
Other sheets, panels & tiles 6811.82
hard rubber or plastics - Combs, hair-slides and the like 9615.11
Other - Combs, hair-slides and the like 9615.19
44
Item No. Commodity
1 Cement
2 Steel reinforcement
3 Plywood sheets
4 Aluminum cladding material with framework
5 Plywood doors
6 PVC doors
7 Staircase, handrails, nosing and fittings
8 Ceramic/porcelain wall tile, floor tiles, marble floor tiles, granite and quartz tiles
9 Column corner guards for car park area
10 Paints
11 Aluminum and zinc/aluminum roller shutters
12 Manhole covers and grating
13 Bell and bell switches
14 Electrical wires and cables
15 Telephone cables
16 Main distribution frames, distribution/junction boxes etc
17 PVC floor gullies
18 WC’s wash basin, bidets, vicinity basins, bath tubs, urinals and other sanitary fittings
and fixtures
19 Power coated louvers and drills
20 Cast iron drainage fittings
21 Timber doors
22 Hinges for doors and windows
23 Floor hinges and spring hinges
24 Casement stays and casement fasteners for windows
25 Door locks, door closers, door handles, door stoppers (allowed if they come as
composite units)
26 Panel bolts
27 Toilet partitions
28 Wall finishing material

9. Negative list of items for BOI approved projects

In order to maintain a rational tariff structure, the list of items given below is placed on the negative list of BOI
concessions. The BOI could permit companies to import these items on duty free basis only if such items are not
available from local suppliers, with the concurrence of the Director General, Department of Trade and Investment
Policy.





































10. Depreciation schedule for used motor vehicles
The depreciation schedule for the importation of used motor vehicles of HS headings 87.01, 87.02, 87.03, 87.04 and
87.11will be revised as follows;

Period of use

Depreciated FOB value
More than 1 year and less than or equal 2 years 90%
More than 2 years and less than or equal 3 years

80%
More than 3 years and less than or equal 4 years 75%
More than 4 years and less than or equal 5 years 65%
More than 5 years and less than or equal 6 years 60%
More than 6 years and less than or equal 7 years 55%
More than 7 years and less than or equal 8 years 50%
More than 8 years and less than or equal 9 years 45%
More than 9 years and less than or equal 10 years 40%
More than 10 years 35%

11 Port and Airport Development Levy (PAL) [ Amendment to PAL Act no 18 of 2011 ]
(a) Aviation Fuel under HS Code No 2710.19.20 will be free from PAL

(b) The import of pharmaceutical products under HS Code Nos, Nos3003.90.11, 3003.90.12,
3003.90.13, 3003.90.15, 3003.90.19, 3004.90.11, 3004.90.12, 3004.90.13, 3004.90.15, or
3004.90.19, 3004.10, 3004.20, and 3004.90.90 will be liable at 5%.
45
12 Excise ( Special Provisions) Act No 13 of 1989
New national sub headings and new Excise (SP) Duty rates on them will be introduced to the following
HS Codes:
HS Code New national sub headings


8703.31
8703.31.71,8703.31.81, 8703.31.91,
8703.31.93,
8703.31.79, 8703.31.89, 8703.31.92
8703.31.94



8703.32
8703.32.51, 8703.32.53, 8703.32.61
8703.32.52, 8703.32.59, 8703.32.69
8703.32.72, 8703.32.81, 8703.32.91, 8703.32.94,8703.32.96,
8703.32.98
8703.32.79, 8703.32.89, 8703.32.92, 8703.32.95, 8703.32.97,
8703.32.99

8703.33
8703.33.51, 8703.33.61, 8703.33.728703.33.81
8703.33.59, 8703.33.69, 8703.33.798703.33.89
8704.21 8704.21.51, 8704.21.52,
8704.31 8704.31.41, 8704.31.42
The Excise (SP) Duty on following HS Codes will be revised:
I tem HS Code
Petrol 2710.12.20
Diesel 2710.19.40
Lorries and trucks 8704.21.51 , 8704.21.52, 8704.31.41 and 8704.31.42
Trishaws
8703.21 & 8703.31
The description of the following HS codes will be revised
8704.21.51,8704.21.52, 8704.21.61, 8704.21.62, 8704.21.63, 8704.21.64, 8704.31.41, 8704.31.42, 8704.31.51,
8704.31.52, 8704.31.53, 8704.31.54
With the down ward revision of custom duty rates , with a view to make revenue neutral , Excise special provision
rates have been adjusted in Chapter 87

13 Telecommunication Levy [ Amendments to Telecommunication Levy Act No 21 of 2011]

The present rate of 20% applicable on Telecommunication Levy will be revised to 25%. The concessionary rate of 10%
applicable on the services provided through Internet /broad band, to facilitate IT and BPO sectors will remain unchanged.

14 Measures to improve tax collection and tax administration
(a) I ntroduction of a Unique Key Number

A Unique Key Number will be introduced to link external interfaces with Inland Revenue Department with the
introduction of the proposed Revenue Administration Management Information System (RAMIS).

Through the Unique Key, RAMIS application will be integrated with the IT Systems of most important External
Agencies to secure information.

(b) Amendments to Companies Act No 7 of 2007:
The provisions will be incorporated to the Companies Act to expand the present requirement in obtaining the
certificate issued by the Commissioner General of Inland Revenue as part of the annual return under the
Companies Act, in obtaining a tax clearance certificate by a company before effecting the liquidation or
any change such as amalgamation, merger, re-structuring etc.

The present provisions in the Ninth Schedule to the Companies Act which sets out the present preferential claims
of default tax of one year will be expanded to 5 years with the commencement of liquidation.
(The Companies Act will be amended.)
(c) Secrecy Provisions:
The restriction in the present provisions will be removed enabling dissemination of specific information to
connected Government Institutions such as the Department of Customs, the Department of Census, and the
Department of Sri Lanka Police etc. whenever, necessary in the course of carrying out official duties.

Provisions will be incorporated to publish the list of inactive VAT registrations in the IRD Web-site subject to
any adjustment if activated later, in order to avoid issuing tax invoices or misuse of the registration for any
other purposes.

(Section 209 of the Inland Revenue Act and the corresponding provisions of the other Acts will be amended.)
46
(d) Approved accountants and authorized representatives :
The rules and regulations applicable to Approved Accountants and Authorized Representatives will be amended
to upgrade the quality and the standards of the services and to be in a more transparent manner with the present
requirements of the IFRS Guidelines and Code of Ethics relating to such professions.

(Section 107 and the other relevant provisions of the Inland Revenue Act will be amended).

(e) New posts of officers based on the new Service Minute of the Inland Revenue Service will be incorporated in the
respective enactments.
(Section 217 of the Inland Revenue Act will be amended).
(f) Default Tax Recovery Act
Relevant provisions in the Inland Revenue Act relating to the recovery of taxes will be introduced to the Default
Tax Recovery Act, in order to strengthen the recovery of process.
{Default Tax (Special Provisions) Act No 16 of 2010 will be amended}
(g) Economic Service Charge Act
The time bar provisions relating to ESC will be made similar to the provisions of the Inland Revenue Act.
( ESC Act No 13 of 2006 will be amended)

15 I nsurance I ndustry
The one-off transaction relating to segregation of composite insurance companies as required by section 53 of the
Regulation of Insurance Industry (Amendment) Act No 3 of 2011, will be treated as a continuation of the business and
the tax neutrality position will be provided on the same basis for life insurance and general insurance with regard to the
following:
(a) Carried forward losses of the existing business ;
(b) Set off of unabsorbed VAT;
(c) Set off of ESC;
(d) Transfer of assets and the continuation of the claimability of depreciation allowances.

( Relevant provisions will be incorporated to the Inland Revenue Act, VAT Act , and ESC Act where necessary)

16 Technical Rectifications
Necessary adjustments will be made to the respective provisions of the Inland Revenue Act No 10 of 2006, Value Added
Tax Act, Nation Building Tax Act No 9 of 2009, Economic Service Charge Act No 13 of 2006, Finance (Amendment)
Acts, Default Tax (Special Provisions) Act No 16 of 2010, Telecommunication Levy Act No 21 of 2011, Ports and
Airports Development Levy Act No 18 of 2011 and Tax Appeals Commission Act No 23 of 2011 to rectify
certain ambiguities and unintended effects (including differences in translations).

17 Effective dates of proposals

Unless stated otherwise, the proposals in relation to :

(i) Income Tax and Economic Service Charge will take effect commencing from April 1, 2014.


(ii) Value Added Tax, Telecommunication Levy Act, and Nation Building Tax, will be implemented with effect from
January 1, 2014.

(iii) Cess, Ports and Airports Development Levy, Customs Duty, Excise (Special Provisions) and Special Commodity
Levy will take effect immediately.

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