Small and medium enterprise (SME) plays a vital role in an economy and it is encouraging to note that the present Minister of Finance intends to provide the consideration it deserves as has been the case from 1983 to 1995. Since 1995 due attention has not been given to this sector.

I believe that the main objective of the Minister is to provide an environment that is conducive for small and medium enterprise to grow and prosper. Has the Small and Medium Industry Development Organisation (Smido) been able to create such an environment? If not, Why? Is it not the usual exhaustive bureaucratic red tape, with a lack of clear objectives and vision ? Enough of Committees, Seminars, Meetings and public relations exercises without appropriate results. The Minister could consider whether Smido itself needs consultancy services to deliver not only effective and efficient services but also to achieve results. The code on Good Governance should apply to organization like Smido too.

Recently, the former Minister of Finance clearly indicated the intention to have a clear time frame for the issue of operating permit. This is because it is inconceivable that such operating permit takes about six months in spite of follow up by the applicants. Without the follow up by the applicants, the application would be as dead as the Dodo. The different obstacles within the system kill the very incentive of the potential small and medium size investors.

The exhaustive bureaucratic red tape, within organizations closely involved with the small and medium enterprises, is a major set back in terms of investments, employment and losses in revenues. It also has an impact not only on the entrepreneurs or potential entrepreneurs but also towards the country at large.

We hope that the intention of the present Minister of Finance would develop into the following five concrete decisions:

(i) Approve a regulation to set the Time frame of 4-6 weeks for the issue or not of the Operating Permit since the date that the complete application is lodged. The authorities responsible for the delay must be made liable to pay a fine which should be passed on to the officers responsible within that Authority.

(ii) To set up a VAT threshold for the services sector which is not only crucial but also makes economic sense in terms of Cost/Benefit. (It does not make economic sense if the cost of VAT revenue collection for small enterprises is higher than the VAT revenue collected from them. This is the reason why there is a threshold of Rs 3 M for manufacturers and traders. Hence, there should be a similar reduced threshold for the services sector).

(iii) To reduce the Income Tax rate of 25% to 20% for the Small and Medium size enterprises whose turnover does not exceed Rs 50 m.

(iv) To reduce the cost of finance to be in the range of 6% to 10% depending upon the risk factor.

(v) To set up or review the objectives and vision for Smido with regular assessment of their performance by External Consultants on behalf of the Ministry.

Due considerations should also be given to the competitiveness and productivity in each sector within which the SME operates. The more SME we have, the higher will be our investments and our growth rate.

Dev POONYTH