Sri Lanka has been eager to promote investments into its rapidly developing economy, and this is evident in the several changes it has made to its policies to create a more favorable investment climate. Here we will look at the reforms that have been implemented over the years that make it easier for local entrepreneurs to start a business in Sri Lanka while also encouraging foreign investors to enter the market.
Registering a business
In 2007, the Sri Lankan government began to simplify the process of starting a business. It adopted a new Companies Act that eliminated the need for the difficult process of obtaining several approvals from various officials and introduced a standard registration fee. It also made it an optional choice for companies to obtain notaries and official company seals in order to start business operations. This was taken a step further in 2013, when the government computerized its Employee Provident Fund and Employee Trust Fund systems, which made the process of obtaining the relevant registration numbers much faster.
In 2009, the private credit bureau of Sri Lanka set up a system for banks to update information and obtain credit reports online. This allowed the private credit bureau to collect loan details from all financial institutions, increasing their coverage. The new Companies Act established in 2007 also strengthened creditors’ rights by preventing the claims of secured creditors from becoming frozen when the company goes into liquidation. This prevents any delay in creditors retrieving their money. With a new system consolidation process introduced in 2010, the government strengthened access to credit information, which saw a massive increase in the registry data that was collected. Following this, in 2013, an electronic collateral registry was established along with rules for its operation, which further strengthened its secured transactions system.
In 2012, Sri Lanka reduced the amount of taxes applied to businesses by abolishing the turnover tax and social security contribution. The government also reduced rates on corporate income tax, value added tax and nation building tax. An electronic filing system is to be implemented in 2014, which will make it much easier for companies to handle their tax payments.
A new EDI system was implemented in 2006 to allow customs declarations and cargo manifests to be electronically submitted and processed. In addition to this, an Electronic Transactions Act was enacted to allow trade documents such as invoices, packing lists and bills of exchange to be submitted to customs in electronic form. In 2013, the ASYCUDA World Electronic Data Exchange system was implemented to reduce export times. An electronic payment system for port services was also implemented to facilitate cross-border trade.
In 2012, Sri Lanka strengthened its protection of investors by requiring a higher level of corporate disclosure for transactions between interested parties. An electronic system was implemented at the Land Registry of Colombo in 2013 to speed up property registrations. Obtaining construction permits was also made easier as building permit fees were reduced and the need for tax clearance was eliminated. The process of obtaining an electricity supply was also improved by restructuring the utility’s internal workflow to reduce the time taken in processing new applications.