Taking the helm at a crucial juncture in the economy’s recovery, the incumbent President of CA Sri Lanka Heshana Kuruppu shares insights into the economy, tax policy and critical reforms, and his vision for the accounting body as CA Sri Lanka looks to bolster its roles in policy advocacy, education, governance and regulation as it champions cross-border collaborations and digital technology to build a future-ready body of accounting professionals who can contribute towards transforming the country. Heshana, who is also the President of the South Asia Federation of Accountants, begins this interview by giving us his outlook on the economy:
The economy is showing signs of recovery compared to the first half of 2023, with several positive indicators. Interest rates have significantly dropped, with the Prime Lending Rate (PLR) decreasing from 27% in January 2023 to 11.7% recently, and treasury bill rates falling below 10%. This reduction in the cost of funds for the corporate sector is expected to boost borrowing and investment activities.
Additionally, the exchange rate has remained relatively stable, experiencing slight appreciation. However, despite these positive developments, domestic demand has yet to see a substantial increase due to the lingering impact on disposable income, which remains a major concern for local businesses.
Two primary factors contribute to this sluggish demand. Firstly, while inflation has moderated to single digits, the overall cost of living remains considerably higher compared to pre-2022 levels, posing a significant challenge for households and businesses. Secondly, recent increases in direct and indirect taxes have further strained disposable incomes.
For instance, the per capita GDP, which peaked at $4,440 in 2017, has regressed to around $3,400, representing a substantial decline of nearly $1,000. The question of when the economy will reclaim its 2017 levels hinges on various factors, including sustained economic reforms, fiscal policy adjustments, and global economic conditions.
Nevertheless, the current low cost of funds presents an opportunity for increased private sector credit uptake and fresh investments, potentially fueling economic growth, elevating income levels, and stimulating demand. However, the pace of recovery and its impact on income levels will depend on the effectiveness of policy interventions, structural reforms, and external economic dynamics.
What would be some of the pressing reforms Sri Lanka would have to pursue going forward?
Sri Lanka’s journey towards economic revitalization demands a comprehensive approach to reform. Key steps include prioritizing the restructuring or privatization of state-owned enterprises (SOEs) and easing the burden on the private sector. Simultaneously, there is a pressing need for comprehensive education reforms to develop a future-ready workforce, including vocational training and a gradual shift towards English medium education.
Promoting innovation and entrepreneurship through supportive policies and improved access to finance is essential for driving economic growth. Additionally, expediting the digitization of government services can enhance efficiency and transparency. This should be accompanied by strategic investments in critical infrastructure projects to improve connectivity and stimulate overall economic activity.
Furthermore, strengthening governance mechanisms, promoting transparency, and combating corruption are crucial for building investor confidence and ensuring sustainable development. By steadfastly pursuing these reforms, Sri Lanka can chart a course towards a more resilient and prosperous economic future.
Where are we on tax reforms? How can we effectively widen the tax net, improve tax compliance, improve the administration and simplify the tax code?
Tax reforms have led to increased revenue, but existing taxpayers still face a burden. As the economy rebounds, this burden may ease, especially for individuals. Efforts to widen the tax net include issuing mandatory Tax Identification Numbers (TINs) and expanding filings for professionals and vehicle owners. However, two key areas need attention. First, the incorporation of digital technology to streamline tax compliance and administration processes, potentially requiring system upgrades for scalability. Secondly, enhancing public trust through addressing governance issues and promoting transparency, is crucial for improving taxpayer compliance. Awareness campaigns can emphasize the importance of tax compliance while advocating for better governance practices, and CA Sri Lanka would play a greater advocacy role.
Can we discuss the recent tax changes and proposed land tax and what these mean to Sri Lanka’s economic recovery?
Recent discussions on tax changes and the proposed land tax signal a significant shift in Sri Lanka’s fiscal strategy. According to insights from the IMF Country Report, these changes involve restructuring property taxes and introducing wealth transfer levies like gift and inheritance taxes to achieve a primary fiscal surplus of 2.3% of GDP by 2025.
Projected to take effect from January 1st, 2025, these reforms are estimated to generate substantial revenue, around Rs 550 to 600 billion, equivalent to 2.3% of GDP. However, concerns persist about practical execution, particularly regarding the wealth tax. Accurate valuation and enforcement integrity are crucial to prevent potential corruption and undue taxpayer burden.
Challenges related to liquidity constraints and valuation methodologies must be carefully addressed. Ensuring transparent valuation processes and providing appropriate tax exemptions will be vital in promoting compliance and overcoming implementation challenges.
Are you satisfied with the efforts made to reform state-owned enterprises?
While some progress has been achieved in reforming state-owned enterprises (SOEs), there remains room for improvement, particularly in expediting the restructuring process to meet established timelines. Restructuring such entities is complex and cannot be accomplished overnight, yet there is a growing public recognition of the necessity for these reforms and an understanding that success requires patience and diligence.
On another note, I am concerned about the sluggish pace of digital transformation efforts across the public sector, which is essential for modernizing and improving service delivery. Embracing digital technologies is crucial for enhancing efficiency, transparency, and accountability within government agencies. Therefore, there is an urgent need to accelerate digital initiatives to streamline processes and improve the overall effectiveness of public service delivery.
As the President of CA Sri Lanka, how do you envision its role in the economic recovery?
We’ve observed a lack of evidence-based policies, whereas our strength lies in data analysis and intellectual capacity in Financial Management and business administration. Additionally, Public Trust is paramount to our profession, with ethics and standards forming the cornerstone of Chartered Accountants’ roles in safeguarding public interest.
In light of this broader societal role, we aim to enhance our contribution through a policy advocacy and economic contribution initiative. This will involve establishing a think tank to identify policy gaps, propose changes within our expertise, and support evidence-based decision-making by the public sector.
Recognizing the challenges faced by the public sector, including limited resources and capacity constraints, we opt to be part of the solution. Working closely with the public sector through our public sector wing, the Association of Public Finance Accountants SL, we seek to professionalize public financial management personnel, enhance their capacity, and promote their efforts.
Last year, we introduced a Master’s degree in public financial management, aiming to upskill public sector employees and facilitate the adoption of accrual-based accounting and Sri Lanka Public Sector Accounting Standards. Additionally, initiatives like the Public Sector Annual Report Awards promote transparency, accountability, and good governance in the sector.
Furthermore, with the global trend of Working from Anywhere, we aim to capitalize on our world-class talent by exploring opportunities in accounting as a service export. By leveraging our connections with regional players and international chapters, we plan to create opportunities and expand our presence in the global market.
As the President of the South Asian Federation of Accounting, how would you steer the Federation towards greater collaboration in the region, helping businesses to unlock opportunities and helping the government craft regulations and policies that protect and enable citizens?
As President of the South Asian Federation of Accounting (SAFA), I aim to enhance regional collaboration while addressing the unique challenges of South Asia. To achieve this, I’ve devised strategic initiatives closely aligned with the priorities of the International Federation of Accountants (IFAC). Here’s how we plan to make it happen:
Firstly, we prioritize engaging stakeholders from various sectors including government bodies, regulatory authorities, businesses, educational institutions, and civil society organizations. By fostering strong relationships and facilitating regular dialogues, we aim to collectively work towards common goals such as transparency, governance, and economic development.
Secondly, we advocate for innovation within the accounting profession by promoting the adoption of emerging technologies such as blockchain and artificial intelligence. Through continuous professional development programmes, we empower accountants to leverage these technologies for enhanced financial reporting and auditing services.
Additionally, we champion policy reforms supporting the adoption of international standards in accounting, auditing, and financial reporting. By engaging policymakers, we strive to shape regulatory frameworks that promote business growth, transparency, and corporate governance, thereby boosting investor confidence and market integrity.
Furthermore, we emphasize the importance of regional collaboration by working closely with other accounting federations and international organizations. This collaboration aims to harmonize accounting standards across borders, facilitating trade and investment flows while enhancing the credibility of financial information in the region.
Moreover, we advocate for ethical leadership within the accounting profession by promoting robust ethical codes of conduct and professional standards. By prioritizing ethical decision-making and transparency in financial reporting, we aim to build trust and confidence in financial markets, thus contributing to sustainable economic growth.
Lastly, we support sustainability reporting and advocate for its integration into mainstream financial reporting practices. By providing guidance and support to businesses, we aim to enhance transparency and accountability in corporate reporting and decision-making processes.
Implementing these refined strategies will enable SAFA to play a pivotal role in promoting collaboration, unlocking opportunities for businesses, and contributing to the development of robust regulatory frameworks across South Asia.
What are the factors shaping the future of the accounting profession in Sri Lanka?
The future of the accounting profession in Sri Lanka depends on several key factors. Firstly, economic shifts and regulatory changes require accountants to continuously update their expertise to meet evolving client needs, ensuring adaptability in dynamic market conditions.
Moreover, there’s a growing emphasis on sustainability reporting, where accountants ensure accurate and transparent disclosures, aligning with global standards to support sustainable practices.
Additionally, the growth of the SME sector highlights the importance of financial management expertise provided by accountants, contributing to broader economic stability.
Furthermore, the accounting profession has the potential to enhance foreign exchange revenue through export services in sectors like BPO and KPO, leveraging Sri Lanka’s service-oriented economy.
Addressing stringent regulations and tax measures is crucial, with accountants playing a critical role in ensuring compliance and accurate financial reporting to uphold trust in financial markets.
Lastly, technological advancements like AI and data analytics offer both opportunities and challenges. Accountants can leverage these tools for strategic guidance, but embracing technology is essential for remaining competitive.
In summary, the future of the accounting profession in Sri Lanka is shaped by economic conditions, sustainability practices, SME sector growth, export services potential, regulatory compliance, and technological advancements, highlighting the importance of adaptation to continue delivering value to clients and stakeholders.
When one considers, the rapid advancement of digital technology and ever-changing global financial regulations, how can CA Sri Lanka help Sri Lanka keep up with the rest of the world?
CA Sri Lanka is at the forefront of adopting new technologies, setting regional benchmarks. Our adherence to international reporting standards, including sustainability, demonstrates our commitment to global best practices. This boosts transparency, and efficiency, and lowers capital costs, aligning with global norms and attracting international investment.
Our extensive training programmes, from Diplomas in Data Analytics to Chartered Tax Advisor programmes, keep our members updated with the latest skills required in today’s digital landscape. We’re expanding our offerings to include new certificate programmes like Financial Markets & Securities and Machine Learning, and in thought leadership, we collaborate with stakeholders to advocate policies promoting ease of doing business, digital innovation, and regulatory harmonization.
Looking ahead, our upcoming CA Sri Lanka Curriculum aims to produce agile professionals ready to thrive in the dynamic business landscape by 2025.