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Budget 1999 — another blow to local industrialists During the recent past we noticed that the debenture issues of a number of banks were oversubscribed, within a few hours of opening them to the public and that very clearly shows the people have a very lukewarm attitude towards the business and less confidence on the economic activities of the country, resulting in deminishing investment in the business sector. This, in fact revealed by declining the national investment from 19% to 17% of GDP in the current year. Even if anyone is interested in starting a business today, prefers to go for trading of which the risk is very minimal vis a vis the industry. That is mainly because of the fact that at any time the finished goods can be disposed and closed down their economic activity only with a minimal loss, but the industrialists cannot do same, as it is a long term investment, and machinery cannot be sold so easily as finished goods. In the long run it is an imperative to have an established industrial sector in the country which can generate foreign exchange, provide higher employment and preserve the country’s foreign exchange. Therefore, it is worthwhile to look into the action taken by this government through its budgets to protect or encourage the private sector industrialists. As the Minister of Finance and the government media have continuously given an out of proportion publicity for the support extended for this sector, it is highly unnecessary to flatter any more. Hence let me point out herein the negative aspects of the budget which in turn will discourage and badly affect the industrial sector with the introduction of certain new tax proposals . As everyone knows the East Asian Economic crisis had forced to devalue currencies by most of the affected countries, by a substantial percentage ranging from 20% - 70%, finally resulted in bringing down the prices of most of their goods and that had made the products of the local industry highly uncompetitive against the imported prices. The international market effects had not been addressed by this budget and instead the situation had been worsened by reducing the tariff rate for finished goods from 35% to 30%. The reduction of the tariff from 10% to 05% for raw materials and machinery had been completely negated by reducing the duty on finished goods. Although both items had been reduced by 5% , the net effect of 35% going down to 30% had given a higher benefit to the finished goods imported over the local industrialists as the importers’ price benefit is not only on raw materials, but labour, overheads and profit mark-up too, while the local industrialists have got only on raw materials. The final analysis of the duty reduction shows that finished goods have become cheaper than the locally manufactured goods and accordingly the goods of the local industrialists have become uncompetitive against the imported goods. There are a number of factories which have already closed down, have now decided to import similar products, sometimes under the same trade name, as it is very much cheaper for them to import same. We have seen companies which were engaged in manufacturing refrigerators, bulbs, batteries, mosquito coils, wall tiles, floor tiles, etc,etc. have now switched on to this strategy. Construction industry also has been recognised as one of the vital sectors and special tax concessions have been granted to them and the local industrialists are going to face certain difficulties as a result of this. Since the construction companies are allowed to import their machinery and equipment duty free, they will be able to import their required material for the construction industry, such as cement, steel, metal, timber, floor tiles, wall tiles etc, etc. on duty free basis and this concession will tend to import most of these items instead of buying them from the local market. Companies engaged in floor tiles, wall tiles, and manufacturers of metal products will have no other alternative, but to close down their business. Today, even without such duty waiver, some of these companies are on the verge of collapse. We can imagine what will be the effect once these items are imported on duty free basis. Therefore in order to maintain a level playing field in the sector of the construction industry, it is necessary to extend this same concession to others who are supplying materials to this industry. Although the NSL has been increased only by 1%, the real effect to the customer will be much more than the announced 1%. As an example, the price of an item of Rs. 1000/-, the effect will be as follows:
If the actual increase is only 1%, the increase should have been only Rs. 10/-, but now it has gone up by (65.48 -53)=Rs. 12.48. Since the possibility of passing off, of price increase depends on the elasticity of demand of the item, the percentage of the price increase which has to be borne by the manufacturer varies from one industry to another. Accordingly sometime a part of the GST and NSL has to be borne by some of the manufacturers and to that extent their contribution will get eroded. The magnitude of this erosion will decide the viability of the industry and there is a possibility that some factories will be forced to close down as a result of this. Further, when it comes to the final tax payment, presently 2/9th of this NSL payment is not allowed for deductions for the tax purpose and if the present principal continues, this disallowed portion will be revised to 2/llth. However, if the Inland Revenue Authorities decides otherwise and ask the manufacturer to bear this increase, then the disallowed fraction will go up to 4/llth of the total NSL payable and that will be an additional tax burden on the industrialists. Therefore it is necessary to clear this area by the Minister, before allowing the tax authorities to take ad-hoc decisions in this regard. While we appreciate the tax concessions extended to the industrialists for utilising advanced technology which is a need to increase the productivity of these institutions by increasing the per capita output, we are at a loss to understand how it is connected with the provision of employment for a minimum number of 50 workers, which is a criteria in deciding the eligibility for this concession. In fact this is a contradictory situation, especially by utilising advanced dratechnology it encourages to reduce the labour required to achieve a higher production. The writer has personal experience that by introducing a sum of Rs.15 million an organisation acquired some machineries which can give 150% of its old production but only with 12 employees, against 60 numbers employed earlier. In fact 48 workers could have been laid off without affecting the production at all. Therefore the advanced technology basically reduces the manual operation and increasees the output. hence in order to be eligible for this concession, what the government could have mostly requested for was not to reduce the number of workers for a specific period of time instead asking for additional employment. Further, the number of employments which has to be provided to be eligible for this consession is fixed at 50 the minimum, irrespective of the total value of investment, of which the lowest is Rs. 4 million but can go up even to Rs. 250 million. This seems to be a highly illogical situation. As the government has decided to have a fund of Rs. 100 million for the setting up of a scheme for construction guarantee, there is a need to consider setting up a fund for rescuing certain industries which are on the verge of collapse due to various reasons, ranging from internal debt burdens to global threats of economic crisis. If we do not consider the industrial sector as a long term requirement for sustaining the economic growth of the country, it will not be possible for us to solve the problem of unemployment which had been used as the theme of this budget and this problem will create another upheaval which we have experienced twice earlier. Although the concessions have been extended for training special skills, if there are no industries to absorb them in future, such training expenses and the given concessions will go down the drain. Therefore protection of the industrial sector and provision of tax concessions must go hand in hand without working one against the other, which in turn will result in an economic crisis soon. HARISHCHANDRA
SAMARASEKERA New CEO for Standard Chartered Standard Chartered Bank announces a change of Chief Executive in its operations in Sri Lanka. Mr. Ahmed Rehman, currently Head of Corporate Banking Standard Chartered Pakistan, will take over from Carey Leonard in mid December. Outgoing Chief Executive Carey Leonard leaves Sri Lanka after nearly 4 years to take up the position of Managing Director in the Banks new branch in Nigeria. Carey Leonard has had a distinguished career with Standard Chartered spanning 25 years working in the UK, Africa, the Middle East and Hong Kong prior to his posting to Colombo. During the last few years Carey has focused on developing the business of selected corporate operating in the growth segments of the economy. Standard Chartered has sought to improve bottom line performance by widening its client base supporting this by introducing a system of Teams in Trade Services to ensure a more personalised service to corporate customers. The deposit base has also showed significant growth with several new services being introduced including a state-of-the-art phone banking unit, tele remittance and a mobile service. A new business unit, Institutional Banking, was established to promote both national and cross border trade and investment for 3 new segments; Financial, Development and Investment Institutions. The emphasis has been on improving quality in service and delivery systems. The custodial division, Equitor received ISO 9002 certification in 1996 followed by certification for the Information Technology department recently with more departments expected to be awarded certification soon. There has also been significant investment in improving sales and service quality standards as well as management skills. Training programmaes have been conducted on a regular basis using both international and local expertise, benefiting staff not only to perform better but helping them in their personal development efforts too. The introduction and refinement of rewards based performance management has helped to take the Bank forward and provided a more forward looking strategic approach to business. During Carey’s tenure Standard Chartered has actively supported the arts in Sri Lanka. This year Standard Chartered sponsored The English Chamber Orchestra’s Tour to Sri Lanka to commemorate 50 years of independence. The Bank has also supported local arts by way of sponsoring the last 2 productions of the Workshop Players; "The Royal Hunt of the Sun" and "West Side Story". Says Carey Leonard "My time in Sri Lanka has been rewarding in many ways and I will always have happy memories of this island and its people, for whom I sincerely wish peace and prosperity. Standard Chartered has made good progress in the last few years and I have no doubt, that Ahmed Rahman and his team will steer the Bank successfully into the next millennium."
The Central Bank's Spot Rates for transactions with Commercial Banks announced on the morning of November 24, 1998 were as follows:
The approximate middle exchange rates of following currencies calculated on the basis of cross rates quoted by Gulf International Bank, Bahrain as it appeared in Reuters Financial Information System on November 24, 1998 were as follows:
Average rates at which the following currencies were quoted by Commercial Banks in Colombo for Telegraphic Transfers at mid-day on November 24, 1998 were as follows:
Average Weighted Prime Lending
Rate (AWRP) and Lowest Prime Rate (LPR) Average Weighted Deposit Rate
of Commercial Banks (AWDR)
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