National Budget 2021 SRI LANKA - Highlights - CSE
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SRI LANKA
National Budget 2021
Highlights
17 November 2020
CT CLSA SECURITIES (PVT) LTD
A Member of the Colombo Stock Exchange
A CT HOLDINGS GROUP AND CLSA GROUP COMPANYNational Budget 2021
Key Highlights
Sri Lanka
National Budget 2021 The Prime Minister and Minister of Finance of Sri Lanka, Hon. Mahinda Rajapaksa,
presented Sri Lanka’s 75th National Budget for 2021 in Parliament on 17 November
2020
The Government of Sri Lanka (GoSL) expects to reach a fiscal deficit of 8.9% to GDP
for 2021E (highest since 2009, vs. 7.9% provisional in 2020E).
The GoSL expects to increase total Revenue and Grants to 11.5% of GDP for 2021E
(vs. 9.9% in 2020E) in which Tax Revenue is forecast at 9.8% of GDP (vs. 8.5% in
2020E). Major revenue raising proposals were not disclosed. However, a Special
Goods and Service Tax (S-GST) was proposed for alcohol, cigarettes,
Telecommunication, betting, gaming and vehicles industries, in place of existing
taxes. However, exact details are yet to be disclosed
Meanwhile, the GoSL estimates total expenditure at 20.4% of GDP for 2021E (vs.
17.8% in 2020E), with Public Investment expected to increase to Rs.1,070bn (vs.
Rs.419bn in 2020E) whilst Recurrent Expenditure is expected to increase to
Rs.2,534bn in 2021E (14.4% of GDP). Major expenditure proposals are for National
Security and 100,000 km Road Program at Rs.20bn each
94% of 2021E deficit is expected to be financed through domestic sources, reducing
the dependency on foreign sources. Given that the banking system remains
relatively liquid as of now, we do not expect significant upward pressure on interest
rates in 1H2021E
By following a pro-growth policy, the GoSL expects real GDP to increase 5.5% YoY
in 2021E and subsequently to increase 6.0% YoY. The GoSL expects to achieve a
deficit target of 4.0% by 2025E by the resultant increase in taxes from high growth
Consequently, the GoSL expects to reduce Debt to GDP to 70% by 2025E (from
current 90%)
Composition of GoSL Total Revenue 2021E Composition of GoSL Expenditure 2021E
Grants
Non-Tax 3% Income
Revenue Tax Public Investments Salaries &
11% 18% 30% Wages 25%
Taxes on External
Trade Other Goods and
26% Taxes on Goods Services 5%
and Services
Subsidies &
41%
Transfers 16% Interest 24%
Deficit Financing (Rs bn) GoSL Debt (% of GDP)
Domestic Financing Foreign Financing 100.0
1,600
90.0
1,200
62% 80.0
800 94%
118%
48% 39%
70.0
400
52% 61% 38%
0 6% 60.0
-18%
-400 50.0
2017 2018 2019P 2020E 2021E 2019P 2021E 2023E 2025E
CT CLSA SECURITIES (PVT) LIMITED | A Member of the Colombo Stock Exchange 2National Budget 2021 - Highlights
Special Goods and Service Tax (S-GST)
• Proposed S- GST for alcohol, cigarettes, Telecommunication, Betting, Gaming
and Vehicles. The new tax will likely be in place of existing taxes charged on
these industries. Exact rate and procedure is yet to be disclosed
Corporate Income Tax
• To exempt individuals and companies engaged in farming, including agriculture,
fisheries and livestock farming from taxes for five years
• Propose a tax holiday of seven years for all renewable energy projects
• Other corporate tax rates which was announced in early 2020 was confirmed;
tax rates as below
Sector Rate before 01 Jan 2020 (%) Tax Rate w.e.f 01 Jan 2020(%)
Banks, Finance and Insurance 28.0 24.0
Construction 14.0* 14.0
Export 14.0 14.0
Healthcare 28.0 14.0
Hotels & Travels 14.0* 14.0
Manufacturing 28.0 18.0
Retail 28.0 24.0
Tobacco, Alcohol, Betting and Gaming 40.0 40.0
Other 28.0** 24.0
* Reduced to 14% from 28% in Nov 2019 ** Previous general rate. Source: Ministry of Finance
Personal Income Tax
• Income tax structure remains as it is with only those who earn annual income
over Rs.3,000,000 having to open tax files; tax rates as follows (individuals
engaged in farming, including agriculture, fisheries and livestock farming will not
be liable)
o First Rs.3,000,000 - exempt
o Next Rs.3,000,000 – 6%
o Next Rs.3,000,000 – 12%
o Balance – 18%
o Further Rs.1,200,000 is deductible for an annum for payments for health,
education, interest on housing loans, pension plan contribution and purchase
of equity or security
Capital Gains Tax
• To calculate taxes based on the sale price of a property or the assessed value of
a property whichever is higher
A CT HOLDINGS GROUP AND CLSA GROUP COMPANY 3National Budget 2021 - Highlights
Value Added Tax
• VAT threshold will remain at a revenue of Rs.300mn for annum
• VAT rate will remain at 8% (except for financial services, which will remain at
15%)
Withholding Tax (WHT)
• Removal of WHT relating to interest, dividend, rent and employment income
will remain
Insurance scheme to support those affected by COVID – 19
• Propose to get businesses and factories with more than 50 employees, to
contribute 0.25% of the turnover to the proposed insurance fund. It is intended
to use this insurance scheme for employed at retail and wholesale shops with
more than 5 employees and hotels.
Capital Markets
• To provide a 50% tax concession for the years 2021/2022 for companies that
are listed before 31 Dec 2021 and to maintain a corporate tax rate of 14% for
the subsequent three years
• Exempt investments in the housing markets through REITs from capital gains
tax, make dividends free from income tax, reduce the stamp duty up to 0.75%
CT CLSA SECURITIES (PVT) LIMITED | A Member of the Colombo Stock Exchange 4National Budget 2021 - Highlights
Banking and Finance
• To suspend the risk weighted provisioning of commercial banks when
purchasing Sri Lanka International sovereign bonds subject to a minimum of
US$100mn under Central Bank Regulations for three years and to free the
profits on capital and interest income of this investments from taxes.
• Enact the Corporate income tax reduction (i.e. 28% revised down to 24% w.e.f. 1
Jan 2020)
• Amend the necessary laws enabling LCBs to also act as investment banks
• Establish National Development Banking Corporation – NDBC by merging
Housing and Investment Bank, Housing Development Real Estate Limited and
Regional Development Bank
o Listed companies likely to have a potential positive impact: All listed LCBs
• To reduce the maximum interest charged on housing and property loans of
public servants granted by banks under housing loans and advances up to a
maximum of 7%
o Listed companies likely to have a potential negative impact: None, likely to
negatively impact GoSL owned Banks
• To extend the concessions and recovery of loans granted under the re-financing
facilities of the Central Bank of Sri Lanka until 30 September 2021 and to
provide the banks with Treasury guarantee covering 50% of such loans
• To pay Rs.2 per dollar above the normal exchange rate for the foreign exchange
remittances sent by foreign workers to banks in Sri Lanka
o Listed companies likely to have a potential negative impact: All listed LCBs
• Restructure the Department of Supervision of Non-Bank Financial Institutions
of the Central Bank and to formulate a robust organizational structure to
regulate finance companies
• Merge the subsidiary finance companies that have not been cancelled by the
Central Bank of Sri Lanka with the parent company
• Merge the finance companies functioning under commercial banks with the
banks in order to strengthen the banking sector
• To consider the investment expenditure in acquisitions as deductible
expenditures
o Listed companies likely to have a potential positive impact: All listed NBFIs
A CT HOLDINGS GROUP AND CLSA GROUP COMPANY 5National Budget 2021 - Highlights
Agriculture Industry
• Continue the policy of limiting the importation of all agricultural products which
can be produced locally
• Exempt individuals and companies engaged in farming, including agriculture,
fisheries and livestock farming from taxes in the next 5 years
o Listed companies likely to have a potential positive impact: CIC Holdings (CIC),
Lanka Milk Foods (CWE) (LMF)
• Provide strategic investment tax concessions for a 5 year period for capital
investments exceeding US$25mn in the dairy sector
o Listed companies likely to have a potential positive impact: Lanka Milk Foods
(CWE) (LMF)
• Allow the depreciation in 2 years for capital investments made on latest
technology to collect local liquid milk in collaboration with local dairy farmers,
enhancements to milk related productions and promotion of liquid milk
o Listed companies likely to have a potential positive impact: Cargills (Ceylon)
(CARG)
• Increase the production capacity of the Lanka Sugar Company by 70,000 MT, to
modernize sugar production factories and to modify the distilleries to enhance
ethanol and related products
o Listed companies likely to have a potential positive impact: Distilleries Company
of Sri Lanka (DIST), Melstacorp (MELS)
• Increase the daily wage of plantation workers to Rs.1,000 from January 2021
o Listed companies likely to have a potential negative impact: All listed Plantation
Sector Companies
• Take steps to encourage plantation companies that have become more successful
after privatisation whilst reviewing the privatisation agreements of unsatisfactory
plantation companies and setting up of alternative investments that can be
commercially developed
o Listed companies likely to have a potential negative impact: All under-performing
listed Plantation Sector Companies which were privatised previously
Healthcare Industry
• Allocate Rs.18bn for the expansion of maternity and child clinics, dispensaries
and adult service centers, laboratory services and research institutes with the
required human resources
• Provide bank and financial facilities on Treasury guarantees to increase the
production capacity of the State Pharmaceutical Manufacturing Corporation to
expand the production of essential pharmaceuticals
• Establish a modern investment zone for local and foreign private investors
under the Strategic Development Act, for production of medicines
o Listed companies likely to have a potential impact: All listed private hospitals
and Hemas Holdings (HHL)
CT CLSA SECURITIES (PVT) LIMITED | A Member of the Colombo Stock Exchange 6National Budget 2021 - Highlights
Construction and Engineering Industry
• Additional Rs.20,000mn to commence construction on rural roads under
100,000km program and Rs.7,000mn to build 10,000 rural bridges connecting
the villages to external environment.
• Allocate Rs.5bn collectively to convert existing vocational education or other
government owned buildings in to non-resident city universities, build a sports
complex and establish walking paths and associated amenities in municipal and
urban council areas
• Commence work on Central Expressway Section I, III and IV together with
phase I of Ruwanpura Expressway. Expect completion by 2024
• Commence work on marine drive to Moratuwa extension
• Implement 3-year road development program covering all 25 districts and
expand the railway network in Colombo and suburban areas
• Allow importation of certain raw materials such as cement, iron rods, premix,
bitumen (that cannot be produced domestically) without import duties to be
used for construction of mega housing schemes, highways and other small and
medium projects
• However, the facts are not yet clear about the removal of import duties on
cement and premix as they can be produced domestically. Clinker is what’s
being imported as the main raw material for cement production
• Provide vocational training programs facilitating the training of skilled
workforce to match the requirement of the industry
• Provide opportunities to obtain 90% of the value of the certified bills from the
banks for contractors engaged in government sector projects
• Importation of machinery with modern technology is exempted from import tax.
• 10 year tax holiday for investments in recycling sites to encourage recycling and
re-use of construction materials
• Construction of housing complexes amounting to 50,000 houses for low and
middle income earners
• Allocate Rs.5,000mn to provide pipe borne water connection to 450,000 houses
o Listed companies likely to have a positive impact: Access Engineering (AEL),
Tokyo Cement Company (Lanka) (TKYO), ACL Cables (ACL)
Automobile Industry
• Reduce import taxes levied on vehicle spare parts required for new production
sectors to incentivize entrepreneurs in automobile industry engaged in vehicle
repairing and assembly.
o Listed companies likely to have a potential impact: All listed motor companies,
Access Engineering (AEL)
A CT HOLDINGS GROUP AND CLSA GROUP COMPANY 7National Budget 2021 - Highlights
Power Industry
• Augment the capacity of the Lakvijiaya Coal Fired Power Plant by 300MW
• Establish 2 natural gas power plants with a generation capacity of 600MW
• Convert the Kerawalapitiya power plants as natural gas power plants and
establish an additional natural gas power plant with private ownership
• Aim to source at least 70% of total energy requirement of the country through
renewable sources by 2030
• Expect to add 1,000MW of solar capacity through local investments during
2021-2023
• Provide solar panels generating 5kW to 100,000 houses of low income families,
through the loan schemes from the Asian Development Bank and the Indian line
of credit. Loans for this purpose to be provided at an interest rate of 4%
• Provide capital grants of Rs.150,000 to 10,000 small and medium scale
commercial agro entrepreneurs to install solar power operated water pumps
• Implement a special loan scheme for public servants to obtain solar powered
electricity
• Allocate Rs.750mn to provide electricity either through solar energy or rural
electricity generation schemes by the end of 2021
• Increase renewable energy capacity to 1,000MW by the implementation of both
off shore wind and floating solar power plants exceeding 100MW, through
incentives from the Board of Investment
• Tax holidays for 7 years for all renewable energy projects
o Listed companies likely to have a potential positive impact: PanAsian Power
(PAP), Vallibel Power Erathna (VPEL) and other listed power companies with
exposure to renewable energy
Tourism Industry
• Extend the concessions and recovery of loans granted under the re-financing
facilities of the Central Bank of Sri Lanka until 30 September 2021 and provide
the Banks with a Treasury guarantee covering 50% of such loans
• Make necessary amendments to simplify the taxes and fees levied by the Local
Government Institutions on tourism with an upper cap
• Investments in the industry exceeding US$10mn with the potential to change
the landscape of the economy, will be provided with concessions up to a
maximum of 10 years under the Strategic Development Law
o Listed companies likely to have a potential positive impact: All listed tourism
companies
CT CLSA SECURITIES (PVT) LIMITED | A Member of the Colombo Stock Exchange 8National Budget 2021 - Highlights
Telecommunication
• Single Special Goods and Service Tax (S-GST) to replace various goods and service
taxes and levies on telecommunication
o Listed companies likely to have a potential negative impact: DIAL and SLTL
• “Gamata Sanniwedanaya” (Communication for the Village) which has been initiated
in Rathnapura district to ensure 100 percent 4G/fibre broadband coverage and it is
expected to be expanded to the entire country by investing Rs.15,000mn from the
Telecom Development Fund during the period 2021-2022
• Provide the required infrastructure including communication towers and fibre
installations to telecom service providers to establish broadband services covering
all the Grama Niladhari divisions of the island
• Under this programme, A five year tax concession will be made available from 01
January 2021 to domestic industrialists
• Allocate 50% of the Telecommunication Development Levy for these investments
o Listed companies likely to have a potential positive impact: DIAL and SLTL
SMEs
• Implement a treasury guarantee scheme for leasing companies to obtain the leasing
payments for purchase of equipment required by small and medium-term
entrepreneurs
• Provide grants of Rs.150,000 to 10,000 small and medium scale commercial agro
entrepreneurs with agricultural wells to install solar power
• Implement a loan scheme to provide special facilities up to Rs.500,000 at an interest
rate of 7.5% p.a. for the purchase of dairy cattle, setting up of ecofriendly cattle
sheds and purchase of equipment for small and medium scale dairy farms
• Implement an insurance scheme through Sri Lanka Export Insurance Corporation
with the contribution of an insurance premium of 1% of the export revenue
• Waiver income tax in arrears, payable by the SMEs as defined in the Inland Revenue
Act, No. 24 of 2017, on the assessments issued up to the year of assessment
2018/2019 by the CGIR
• The income tax return furnished by the SMEs for the year of assessment
2019/2020 is proposed to be accepted and additional assessment not to be issued
for that year on tax payers, who furnish the Income Tax Returns for the year and
pay the tax declared in the Return
Colombo Port City Special Economic Zone (CPCSEZ)
• To present a new legal framework for CPCSEZ conducive to promote investment
and commercial services, following the approval of the budget, in Jan 2021
o Listed companies likely to have a potential positive impact: All listed companies
likely to participate in the Special Economic Zone of the Colombo Port City
A CT HOLDINGS GROUP AND CLSA GROUP COMPANY 9National Budget 2021 - Highlights
Summary of Budget (Rs bn) 2016 2017 2018 2019P 2020E %YoY 2021E %YoY
Total Revenue and Grants 1,773 1,932 1,932 1,991 1,588 -20.2 2,029 27.8
Total Revenue 1,766 1,924 1,920 1,983 1,580 -20.3 2,019 27.8
Tax Revenue 1,464 1,671 1,712 1,735 1,358 -21.7 1,724 27.0
Income Tax 259 275 310 428 324 -24.2 371 14.5
Taxes on Goods and Services 842 1,026 1,062 976 631 -35.3 823 30.4
Taxes on External Trade 363 370 340 332 403 21.5 530 31.5
Non-Tax Revenue 222 161 208 156 162 3.9 227 40.1
Provincial Councils Revenue 80 92 - 92 60 -34.8 68 13.3
Grants 7 8 12 8 8 1.2 10 25.0
Total Expenditure 2,413 2,666 2,693 3,428 2,854 -16.7 3,594 25.9
Recurrent Expenditure 1,837 2,021 2,090 2,516 2,445 -2.8 2,534 3.6
Salaries and Wages 632 660 626 751 846 12.6 905 7.0
Other Goods and Services 169 167 139 210 172 -18.1 188 9.3
Interest 611 736 852 901 866 -3.9 860 -0.7
Subsidies & Tranfers 425 458 473 654 561 -14.2 581 3.6
Public Investment 594 657 625 929 419 -54.9 1,070 >+100.0
Other -18 -12 -21 -17 -10 -41.2 -10 0.0
Revenue Deficit -71 -97 -169 -533 -865 62.3 -515 -40.5
Primary Surplus (+)/Deficit (-) -29 2 91 -536 -400 -25.4 -705 76.3
Budget Deficit -640 -734 -761 -1,437 -1,266 -11.9 -1,565 23.6
Total Financing 640 734 761 1,437 1,266 -11.9 1,565 23.6
Total Foreign Financing 429 382 465 542 -225 >-100.0 99 >-100.0
Total Domestic Financing 211 352 296 896 1,491 66.4 1,466 -1.7
As a % of GDP
Revenue & Grants 15.0 14.5 13.5 13.3 9.9 11.5
Revenue 14.9 14.5 13.4 13.2 9.9 11.4
Tax 12.4 12.6 11.9 11.6 8.5 9.8
Expenditure 20.3 20.1 18.7 22.8 17.8 20.4
Recurrent Expenditure 15.5 15.2 14.5 16.8 15.3 14.4
Public Investment 5.0 4.9 4.4 6.2 2.6 6.1
Revenue Surplus (+)/Deficit (-) -0.6 -0.7 -1.2 -3.6 -5.4 -2.9
Primary Surplus (+)/Deficit (-) -0.2 0.0 0.6 -3.6 -2.5 -4.0
Budget Surplus (+)/Deficit (-) -5.4 -5.5 -5.3 -9.6 -7.9 -8.9
P* Provisional
CT CLSA SECURITIES (PVT) LIMITED | A Member of the Colombo Stock Exchange 10Contact Information
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Disclaimer: This document has been prepared and issued by CT CLSA Securities (Pvt) Ltd. on the basis of publicly available information, internally
developed data and other sources, believed to be reliable. Whilst all reasonable care has been taken to ensure that the facts stated are accurate
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