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Seidles TV ready to de-list and close shop

Siedles T.V. Industry Limited has obtained the approval of the Securities and Exchange Commission (SEC) to have the company de-listed from the Colombo Stock Exchange (CSE) subject to conditions set out in the relevant SEC rules, shareholders have been told.

These include the requirement that the company summons an extraordinary general meeting and obtains the votes of not less than three-fourths of the members present or those voting by proxy to approve the de-listing.

Siedles has summoned the required EGM for 2 pm on December 30 to consider the resolution for de-listing.

In its annual report and accounts for 1997/98, the company's chairman, Mr. N.M. Udeshi said that he had already reported to shareholders the circumstances that prevented the company from operating. He had also said in his last annual review that the directors were exploring the feasibility of utilising the available infrastructure for the benefit of the shareholders.

Udeshi said that they had eventually found that there was no possibility of resurrecting the business. He said that once the de-listing procedures are completed, members of the company will be told of proposals for the sale of their shareholdings.

During the year ended March 31, 1998, Siedles have posted a loss of Rs.1.2 million which has been set off against unappropriated brought forward profits of Rs.2.3 million leaving a balance unappropriated profit of Rs.1 million.

The directors have not recommended any dividend for the year under review.

Udeshi in his report expressed "sincere gratitude to all our shareholders whose forbearance as has always been a source of strength''.

Under the relevant SEC rules all those shareholders who oppose the de-listing and who wish to sell their shares at a CSE determined price will be given the opportunity to do so.

The CSE will have to fix the price on the basis of transactions in the three preceding months or on criteria commonly used to determine market value of a share.

Shareholders dissatisfied with a CSE determined price also had the right to appeal to the SEC within 14 days and the SEC decision on such a price will be final and conclusive.

According to the last annual report, the Siedles share had a net asset value of Rs.12.82 during the year under review and Rs.13.69 a year earlier.

The highest value at which the sharers had been traded during the year was Rs.6 and the lowest Rs.4.50. The share price at the year-end was Rs. 6. The previous financial year, it was traded at a Rs.9 high and Rs.5 low and commanded a year-end price of Rs. 5.25.

The directors of the company are: Messrs. N.M. Udeshi (Chairman), N.N. Udeshi (Managing Director), C. Wijenaike, M.M. Udeshi and A.H. Udeshi.

Carsons seek big biz support for quality business school

Carson Cumberbatch and Co. Ltd. has initiated a proposal to set up a top class business school in Sri Lanka and has made contact with the Lahore University of Management Sciences (LUMS) which has in twelve years earned wide acclaim both regionally and internationally for the quality of its courses.

One of Pakistan's top business leaders, Syed Barbar Ali, Pro-Chancellor of LUMS, who was in Colombo last week with a supporting team from the university, pledged all possible assistance from LUMS to set up a good business school here.

Many leading company chairmen including Ken Balendra of JKH, Stanley Unamboowe of Carsons and other business leaders heard Barbar Ali who served briefly as Pakistan's finance minister and is chairman of Coca Cola, Hoechst, Siemens and Tetra Pak in Pakistan, explain LUMS genesis and attainments. He is also a director of Lever Brothers in Pakistan, Nestle Milkpak and the South Asia Regional Fund.

Barbar Ali said that classes at LUMS are modeled on the case study method of the Harvard Business School. Computing is given emphasis and LUMS alumni are in high demand in Pakistan and also by foreign employers.

LUMS is administered by a Trust Fund, and has been formed and funded by donations from the public and private sector and grants from international funding agencies. It is run as a self-financing and non-profit organisation.

.In a brief presentation, Carsons' Deputy Chairman Hari Selvanathan said that they have initiated the process of trying to get a good business school set up here because they felt that companies here will need good people if they are to compete effectively in the new millenium.

Executives exposed to global business practices, who are knowledgeable, can lead from the front and create differences in their organisations are a vital need, he said. Such people had to be trained carefully, provided with the required knowledge and management skills through a quality business school modeled on similar schools the world over.

Saying that the available business education opportunities in the country fell far short of what is required, Selvanathan said that ``what we now have falls far short of what is ideal'' and said that they were seeking the co-operation of the key players in the business world here to join together to set up a private sector funded business school which can provide the managerial material all their companies needed.

``It will benefit all of us and it will be our contribution to nurturing the next generation of business leaders of this country. I think all of us have a vital role to play in this respect and an important social obligation to fulfill.''

Selvanathan told the Sunday Island that Carsons have already sent some of their people to LUMS and they found it most useful.

Barbar Ali said that merit was the only criterion for selection of students for LUMS and pressure for admission on other considerations, including the funding of its activities, has been fiercely resisted. While LUMS charged fees, it was a non-profit organisation and no student has been deprived admission for lack of funds. They had various ways of assisting their students, including the granting of loans, and repayment has been as high as 95%.

``We don't let anybody get away with our money. But repayment is not a problem because alumni get well paid jobs and have the ability to pay back their loans,'' he said.

Veytex losses mount, chairman sees doomsday scenario

One of the country's biggest textile producers sees the survival of local textile mills in the duty free scenario following the last budget as "doubtful''.

Mr. D.S. Mukunthan, chairman of the troubled Veyangoda Textile Mills Ltd. which is carrying Rs.155.7 million in retained losses has told shareholders that the 1998 budget proposals to abolish import duty on textiles had sent shock waves through the local textile industry.

"With this announcement the market immediately became sluggish and the management decided to reduce production levels until a clear picture emerged. The company was compelled to reduce prices in order to make its products move in the market, thus incurring losses", he said.

This situation was aggravated by a prolonged closure of the mill from December 1997 to March 1998 due to labour disputes and the losses had continued up to the end of the year under review, he said.

"Although the government subsequently announced a restructuring program which included the Textile Debt Recovery Fund, survival of the local textile mills in the duty free scenario remain doubtful'', Mukunthan said.

He said that although a modernisation program is part of the package, "leaving the decision for financing to the local banking sector has made the proposal a non-starter''.

Veytex had turnedover Rs.601.8 million during the year ended March 31, 1998, down from Rs.728.6 million a year earlier. Its operating loss during this year had grown to Rs.49.7 million from a loss of Rs.45.8 million a year earlier.

The company had succeeded in reducing interest cost during the year to Rs.15.5 million from the previous year's Rs.41 million and its pre-tax loss of Rs.65.2 million was below the Rs.86.8 million loss a year earlier.

The company has said that in addition to being forced to curtail its operations during the year under review as a result of labour disputes, it had also faced severe competition from smuggled fabrics, leakages from garment factories and competition from local export garment manufacturers selling upto 10% of their production in the local market under BOI rules.

The company said that despite these problems which had been aggravated by the lifting of the import duty on textiles, they had prepared their accounts on the basis that the company was a going concern. This was based on the assumption that the commercial banks will continue to extend facilities for a further one year from the date of the last accounts.

Veytex is also hopeful that the BOI, now finalising a scheme to assist textile manufacturers, will soon implement a scheme to enable manufacturers to modernise and link with the garment industry.

The directors of the company are: Messrs. S. Mukunthan (Chairman), O. Ikari (Alternate - Mr. S. Nimalan), S. Nimalan, J.K. Perera and Mrs. M. Chandresekera.

CSE reports Rs.152m. foreign inflow in November

There has been renewed foreign investment in the Colombo Stock Exchange (CSE) in November with foreign players being net purchasers with a net inflow of Rs.152.2 million to the exchange during the month, CSE said in its November report.

This compared against a net outflow of Rs.64.8 million in October, the CSE report said.

In November, foreign purchases had accounted for 48% of the total turnover while foreign sales accounted for 39%.

CSE said that price levels had appreciated significantly during the month with the all share price index moving up by 76.4 points (15.3%) and the sensitive index moving up 158.3 points (21.8%).

The all share index which opened the month at 498.9 closed the month at 575.3 while the sensitive index moved up from 723.1 to 881.4.

The CSE said that turnover too had increased significantly during the month with the average daily turnover of Rs.91.5 million up 158% from October.

Turnover in November at Rs.1.8 billion was up from Rs.0.7 billion in October and was higher than the Rs.1.3 billion achieved in November last year.

Turnover during the period January-November this year at Rs.17.5 billion was up from Rs.17 billion a year earlier.

According to the CSE, the Bombay Stock Exchange had remained unchanged in November while Karachchi appreciated by 12%. Colombo did better, moving up 16% during the month.

Other foreign markets have also done well in the month with inflow of funds. Dow Jones broke through the 9000 barrier for the first time in four months appreciating 6%. In London, the FTSE moved up by 5% to reach its highest close since early August. The Tokyo NIKKEI index also reached a 3-month high appreciating 10% in November.

Forbes ABN AMRO said in its business roundup for this week that the ``healthy'' net foreign inflow in November was the first breach of the Rs. 100 million barrier by foreign funds Since July 1997.

``This is a positive indication of things to come during the new year although December, so far, has only seen an outflow of Rs. 33 million on account of profit taking on the back of gains registered during the previous month,'' Forbes said.

Our food imports - I

By Kanes
Many of us may not be aware that we spend about Rs. 50 billion a year on imports of food. In 1997 our expenditure on food imports was Rs. 47 billion or 14 per cent of our total value of imports. This expenditure was equal to what we earned that year from our tea and rubber exports: tea - Rs. 42 billion and rubber 5 billion. The most striking feature of our food imports is that a substantial part of it can be produced at home to create employment and income and conserve foreign exchange.

Cereals
The largest group of food imports is cereals amounting to Rs.14,031 million, the main cereals being wheat, rice and maize. Imports of wheat amounted to 820,248 metric tons valued at Rs. 8,786 million; Australia was the main supplier accounting for 29 per cent of the imports,, USA second with 26 per cent and Argentina third with 18 per cent. Wheat consumption in the country is rising; imports have increased by 34 per cent in the last ten years. As wheat cannot be grown successfully in Sri Lanka we have no alternative but to continue to import it in the future. Its consumption could be reduced by raising its price, but this tends to increase the consumption of rice which is more costly. In 1997 the CIF price of a kilogram of wheat was R.10.30 as compared to Rs.14.15 for rice; wheat flour, after milling, costs Rs.13.92 per kilogram which is still slightly cheaper than imported rice.

We also imported 306,000 metric tons of rice valued at Rs.4331 million in 1997. India was the main supplier - 52 per cent, Pakistan next - 42 per cent and Malaysia third - 2.5 per cent. It is significant that India has now become a major rice exporter and is now the principal source of supply to Sri Lanka. Unlike wheat, rice is a crop which we can grow in Sri Lanka and in fact in 1995 we even had a small surplus for export. The disquieting feature is that paddy production has remained virtually stagnant in the last ten years; the annual average production in the three years 1988-1990 was 2,359,000 metric tons and in the three years 1995-1997 2,370,000 metric tons. This may have been caused partly by the fall in investment in irrigation and agriculture on the part of the government and partly by the unremunerative producer price. As we had mentioned in our column some time back, government capital expenditure on irrigation and agriculture, instead of increasing, actually dropped from Rs. 6060 million in 1995 to Rs. 6060 million in 1997 or by 38 per cent; guaranteed price for paddy on the other hand had remained the same at Rs.155 per bushel since 1993. The import of rice too would have depressed prices and discouraged domestic production to some extent. It is clear therefore that paddy production should receive more attention than it has hitherto received.

The third largest cereal imported is maize. In 1997 we imported 90,237 metric tons of maize valued at Rs.888 million, of which 19,855 metric tons were seed maize. The principal suppliers were China 52 per cent, USA 24 per cent and India 13 per cent. Maize is a crop which can be grown anywhere in the country without much effort, but domestic production has fallen in recent years mainly as a result of cheap imports. The extent under maize cultivation has dropped from 48,863 hectares in 1993 to 25,796 hectares in 1997 or by 48 per cent and production from 69,300 metric tons to 25,700 metric tons or by 37 per cent. Domestic production meets less than a quarter of the country's requirements of maize. The causes for the inadequate domestic production of maize and the fall in production in recent years needs to be studied carefully by the appropriate authorities and action should be taken to increase local production .

Sugar
The second largest group of food imports is sugar. Imports in 1997 of sugar and sugar confectionery amounted to Rs.11,075 million of which sugar imports were 548,550 metric tons valued at Rs.10,944 million. The principal suppliers of sugar were Mexico 24 per cent, Brazil 17 per cent, Guatemala 14 per cent, Thailand 14 per cent and Columbia 13 per cent. Thus, Latin American countries are the main sources of our sugar imports. The absence of a clearcut policy and lack of management have bedevilled the domestic sugar industry. Domestic production of 63,897 metric tons in 1997 was equal to 10 per cent of the country's requirements; what is more, it has declined from 72,275 metric tons in 1994 every year. One factory - Kantalai - has not been in operation for three years; another is buying sugar cane from the farmers and transporting it to a factory far away for processing; yet another is beset with labour problems. The country has great potential to produce a substantial part of its requirements instead of importing from places as far as South America but decisive action by government is needed to unravel the mess.

Vegetables, Spices, Pulses and Tubers
The third largest food import group is edible, spices, pulses and tubers whose import value in 1997 amounted to Rs.7,728 million. The most important in this group is pulses - lentils and peas - valued at Rs.3,382 million. Lentils or dhal imports alone amounted to 83,186 metric tons valued at Rs.2,748 million; main suppliers were India - 54 per cent, Syria 15 per cent, Nepal 10 per cent and Turkey 9 per cent. In addition, 34,676 metric tons of peas were imported to the value of Rs.634 million mainly from Australia 36 per cent, Turkey 18 per cent, UAE 15 per cent, Syria 10 per cent and Iran 9 per cent. Sri Lanka produces only a fraction of the country's requirements of lentils and peas and more alarmingly the little that we produce has been falling in recent years. The area cultivated under blackgram, cowpea and green gram has declined 42 per cent between 1993 and 1997 and production has fallen by 43 per cent in the period from 62,500 to 35,800 metric tons, presumably because of cheap imports.

Next in importance is the onion group - Bombay or big onions, red onions and garlic. We imported 119,316 metric tons of big onions in 1997 valued at Rs.1,312 million; India supplied 91 per cent of these imports and Pakistan 8 per cent. There were also smaller quantities of red onions imported - 3,117 metric tons valued at Rs.60 million - practically all from India. Garlic imports amounted to 9660 metric tons valued at Rs.261 million mainly from China - 50 per cent and Hong Kong 28 per cent. Domestic production is not only far below the consumption requirements but has also fallen in recent years. Big onions fell by 41 per cent from 38,000 to 22,500 metric tons between 1993 and 1997 and was sufficient to meet only 16 per cent of the consumption requirements. Red onion production too has declined by 51 per cent from 91,000 to 44,800 metric tons in this period. Unlike big onions, however, domestic production in 1997 met about 93 per cent of local requirements. Apparently Sri Lanka does not grow garlic and the entire consumption requirements are imported.

The next major import is potatoes. In 1997 we imported 109,497 metric tons of potatoes valued at Rs.1,333 million of which 1,122 metric tons were seed potatoes worth Rs.32 million. The principal sources of supply were Netherlands 44 per cent, India 33 per cent and UK 15 per cent. Domestic production of potatoes is quite substantial but it is inadequate and further, declining. Between 1993 and 1997 it fell by 14 per cent from 77,200 to 66,500 metric tons and met 62 per cent of the consumption. Both producers of potatoes and big onions have opposed excessive imports as they normally tend to depress prices and undermine local production.

Among other subsidiary food imports are dried chillies, coriander seed, cummin seed, fennel seed, mathe seed, mustard seed and turmeric. Chillies (dried) are the largest among them; imports in 1997 were 13,269 metric tons valued at Rs.588 million - all from India. Like all other food crops, domestic production is not only inadequate but has also fallen in recent yeas. Between 1993 and 1997 it fell by 55 per cent from 40,000 to 18,100 metric tons; thus it met 58 per cent of the consumption requirements in 1997. The sharp fall in production by 55 per cent in five years is a matter of serious concern; presumably imports themselves may have something to do with it as in the case of potatoes and big onions. It is therefore a matter which needs to be studied by the authorities with a view to formulating concrete measures to increase production.

Some of these foods can be grown in Sri Lanka and in fact the greater part of domestic consumption of groundnuts, gingelly (sesame) and soya beans is met by local production. It is a matter of concern, however, that the domestic production of groundnuts fell by 57 per cent from 12,300 to 5,300 metric tons between 1993 and 1997 and soya bean production declined by 82 per cent from 2,200 to 400 metric tons in the same period. Gingelly production, however, rose by 8 per cent from 6100 to 6600 metric tons in these years. Imports of groundnuts met about 25 per cent of domestic consumption, soya beans 33 per cent and gingelly 98 per cent. Their production could easily be increased to meet the country's full requirements. Turmeric and mustard are also grown in the country but we have no information regarding the amount produced; turmeric imports are fairly large costing Rs.68 million. Coriander, cumming, fennel and mathe seeds apparently are not produced in Sri Lanka and we are not sure whether they can be successfully grown here or not.

Managing the economy better

by Analyst
The government seems to be labouring under economic delusions. One minister boasting of the achievements of the government referred to the reductions in the current account deficits of the balance of payments. But whether this is good or bad depends on how the improvement has come about.

There necessarily has to be a deficit in the current account balance if there is a net inflow of capital. The current account balance surplus or deficit is matched by an equal and opposite net inflow or outflow of capital. But not all capital inflows count the same.

Investments in local enterprises by foreign investors, called direct foreign investments are different from short term capital inflows into the stock market. The latter flows just finance a current account surplus or deficit. Given below are the current account and capital account figures for the last few years.

It should be noted that although the current account deficit has come down and as a ratio to the Gross Domestic Product it has improved to -2.5%, yet the official reserves have shown little improvement.

Long term capital inflows have not been enough to cover the deficit in the current account and the short term capital outflow. These long term capital inflows in 1997 included receipts from privatisation which are unlikely to be repeated to the extent that the improvement in current account deficit was due to a reduction in investment, it's not necessarily a healthy sign.

Similarly, the improvement in the budget deficit as a ratio of G.D.P. has to be interpreted after analysing how it has been brought about. The reduction in the budget deficit has come about by cutting government capital expenditure and is therefore not necessarily a healthier sign for the economy. Economic ideas are deliberately distorted by politicians. Often an economic idea has two sides and politicians prefer to talk only of one side of the coin.

A trade or budget deficit is not necessarily a sign of weakness if it reflects higher productive investment in the economy and if it is financed by long term savings of investors local or foreign. But if these deficits arise for greater consumption expenditure or social welfare expenditure then they don't indicate good health in the economy.

There seems to be a running battle between the Minister of Agriculture who wants to protect the local agricultural producer and the Minister of Trade who wants to look after the consumer. Economic shibboleths are used to buttress the case of the Minister of Trade. Free Trade is economically justifiable. But as the Bible says the Sabbath is for man, not man for the Sabbath.

It is not the fault of the producers that the rice, onions, potatoes etc. cost more to produce in our country than to import. For decades the economy was closed and domestic prices got out of alignment with prices in the wide world outside. Large and continuous budget deficits year in and year out created a domestic level of inflation much higher than inflation in the outside world. Regular and continuous depreciation of the rupee did not help either since they were invariably followed by still higher wages and costs of imported inputs.

Only the comparatively high tariffs on imported agricultural products prevented a flood of cheap food products from India where domestic inflation was held under much better control and farmers obtained various subsidies including practically free electricity. This situation cannot be remedied overnight by exposing our farmers to competition from imported agricultural products.

Almost every country that achieved sustainable economic growth gave more consideration to the producer than the consumer. Although our farmers constitute a significant section of the population they are not organised. The urban consumers are more vocal. The workers in urban areas feel an increase in the cost of living particularly of food prices.

They react by demanding wage increases and creating industrial unrest which scares politicians and the government. So it is a trade-off between the needs of the farmers and the demands of the urban working class consumers.

Economic theorists have always argued that prior to industrialisation there should be an agricultural surplus generated. When elections come round, politicians promise to write off loans taken by farmers and proceed to carry them out when elected. So our farmers have never learnt economic discipline. They have never learnt to be self-reliant or to lift themselves up with their boot straps.

Various subsidies for agricultural products have also created distortions in the market. A free market has not been allowed where prices reflect true costs. Nor has land been allowed to be freely traded. The Minister of Agriculture deserves praise for going ahead with the registration of land titles in spite of the opposition of vested interests like the lawyers.

Every day billions of private decisions are made by individuals, farmers, firms etc., to buy sell, save, store, invest, scrap. Each of those decisions links into others, the whole lot being sorted out by the invisible hand that Adam Smith praised two centuries ago.

But the visible hand of the government cannot be quiet. It decides what is good for the people. In communist countries they went so far as to bring about the collapse of whole economies. But serious damage is still being caused in developing countries like ours by governments.

The government must decide whose welfare is more important. Can we become a nation of lotus eaters like the South Sea Islanders who kept a watch on the horizon for foreign ships to bring the goodies? We must learn to be producers not mere consumers. We must produce at the cheapest cost.

The law of comparative cost advantages is not a state law as some politicians seem to assume. Comparative cost advantages keep changing over time. Our farmers must be given every encouragement to produce and produce cheaply.

One can understand the need to keep the price of rice stable because it is the staple food. But as for potatoes, don't we have our yams like sweet potatoes and manioc? We should produce and consume the indigenous agricultural products. Our unpatriotic politicians ridiculed the emphasis on consuming indigenous products during the 1970's. They are a unscrupulous lot, devoid of any moral or social values, only interested in coming to power.

It's time social organisations promoted the consumption of our indigenous agricultural products over television and radio without merely creating demand for New Zealand dairy products and Australian meats.

In both Korea and Japan there is strong consumer preference for local products which has effectively blocked the efforts of the developed western countries to prtronise their markets. Are we the only unpatriotic lot who refused to support our own people who are producers?

Taxation
The Inland Revenue authorities recently tried to pry into the books of commercial banks for the names of large deposit holders. There was an uproar and the authorities rightly abandoned it. If proceeded with it would have led to a discouragement of savings in the banking sector.

This is not to say that the authorities should not hunt tax dodgers. They should take a cue from India where presumptive taxation is part of the law. The India Finance Act of 1997 introduced a sort of self survey for persons who satisfy what are known as economic indicators of comfortable living such indicators are (i) ownership or occupation of specified area in notified towns (ii) car (iii) telephone and (iv) foreign travel.

The law prescribes that anyone who satisfies two of these four criteria have to file a return. The intention is to make it obligatory for such persons to file a return whether they have taxable income or not.

Without touching the banks the authorities could find out those who own pajeros and cars, who engage in foreign travel etc. The banks are bound by law to maintain secrecy. But there are no such obligations on the part of the Registrar of Motor Vehicles or the airlines.

But the government should first close the loopholes for tax evaders. Why should politicians be exempted from income tax? Is there any other democratic country where the legislators and ministers are exempt from income tax? Our politicians are a privileged class like the clergy and nobility prior to the French Revolution. Will another revolution be required to wipe away this iniquity?

The Deputy Minister of Finance announced in his budget speech that there will be tax reform. But the recommendations of the previous tax reform commission have not been implemented. Why waste public money on Commissions of Inquiry if their recommendations are to be ignored? This commission recommended the repeal of the tax exemption of politicians and bureaucrats.

The tax laws have become a tangle of tax breaks and loopholes that only accountants and tax consultants enjoy. The tax return itself is too complicated for an ordinary person to complete.

Any tax system is designed to raise enough revenue for the government to pay for its own activities. In the past there were other objectives like the redistribution of income from those with more to those with less. This objective has more or less been abandoned although providing subsidies is still in vogue.

Without concentrating on the main objective of gathering revenue, this government has sought to give tax advantages to causes deemed worthy on grounds of promoting economic development. There is enough evidence of the havoc caused by such tax concessions. It led to the excessive construction of hotels, making all of them unprofitable as they engaged in cutting room rates much to the detriment of the whole industry. What is worse is that such tax concessions by providing loopholes to tax evaders wreak havoc with the goal of raising revenue.

All the time the budget is in deficit and yet these tax concessions are given. Again, the ease with which these concessions can be given makes them irresistible to politicians and businessmen.

In market economies almost any economic activity can be said to promote development. They will create jobs, increase output. There may be some activities which are under-valued by the market, such as perhaps education or research and development. But even so favouring them through tax concessions is a mistake.

There are two reasons for this.

First, it is not transparent. Any advantage that a tax break can achieve a subsidy can accomplish just as easily. The difference is that the subsidy shows up on the government books for all to see. But when a tax break is given, the extra taxes that every one else has to pay to make up for it, are hidden.

Second, relying on tax breaks destroys any hope of stability as more and more people learn to get the benefit out of it. Then there are demands from other lobbyists who can make a perfectly good case why they also should be given the same tax breaks. In the end, most of these tax breaks simply end up hurting each other.

By doing away with all such tax breaks most taxpayers would gain far more in simplicity and economic efficiency - than they lose the basic problem with taxes is that they punish whatever is being taxed. As a result they distort the decisions of families and firms, which leads to all kinds of economic nonsense.

One compelling objective of tax policy therefore should be to make taxes as neutral as possible and rather than punish some productive activities a lot, punish them all a little.

The Minister of Trade when he was in the opposition used to argue that income tax should by done away with completely on both people and corporations and replace it with a Goods and Services Tax. But a high rate of G.S.T. on commodities would mean that the tax burden on the poor, whose consumption as a proportion of income, would be proportionately higher than on the well-to-do, would rise.

If all goods including food items were taxed the G.S.T. rate would be lower but still the burden on the poor would be proportionately higher than the rich since the poor spend more of their income on food than the well-to-do. Eliminating essential goods such as food and clothing from the base of the sales tax drives the tax rate on all other goods much higher as we see in the present G.S.T. rate of 12.5% which itself is inadequate to provide the required revenue.

The Republican Party in U.S.A. is in favour of a flat rate of tax on incomes. Whereas the current graduated income, tax system has multiple tax rates of 10%, 20%, 30%, the flat tax has only two: zero and say 20%. It is progressive though not as progressive as graduated income tax.

Unlike the usual tax gimmicks of governments, a flat rate tax is simple and causes fewer distortions, higher rewards for saving and for high taxpayers lower marginal rates. There could be a simple deduction for personal allowances and perhaps for compulsory savings like the EPF, all income in excess of such rebate would be taxable at the same rate.

But the social obligation to pay income tax is not accepted by the people as in developed countries. Most taxpayers complain about the complexity of the tax regulations many small traders just do not wish to pay any income tax at all merely because of the hassle.

India has introduced presumptive taxation for them. They are now given the option of paying 5% of the turnover as income tax without having to submit elaborate tax returns and detailed financial accounts small retail trades would prefer to pay such a tax on turnover as a proxy for their income.

What is required is to simplify the tax system in that people will comply many small business fight shy of paying income tax because they think the department of Inland Revenue is such a nuisance. The exemption of bureancrats from income tax also means that there is no incentive for the bureaucracy to act humanely in formulating the tax code since they themselves will never have to pay and will not realise the hardship and hassle caused.

Finally, a flat rate tax or a system with low marginal rates and a broad base will lessen the incentive for tax evasion. High marginal tax rates encourage people to under-report income on sales. It is also essential to keep the tax base broad: a narrower base means higher rates on activities which are taxed, making evasion more tempting.

But there is little point in trying to tax activities that are easily concealed. On the other hand, the effectiveness of tax enforcement depends on the information available to the tax authority. More information must be made available to the tax authorities although not from the banks which are sworn to secrecy. But there are enough other sources of information which can be tapped. Moreover, all the tax systems must be simplified.

Radiant Gems hopes Internet marketing will help it turnaround
Ties up with B. P. de Silva and another

The current Asian economic crisis has begun to affect the gem industry and Thai dealers are reportedly selling their stones below cost as a surviving strategy, a Lankan quoted company in the gem business has told shareholders.

Mr. W. P. Fernando, chairman of Radiant Gems International Limited, has reported that certain types of precious stones available here like sapphires, citrine, garnets and amethysts are currently in demand and a lot of attention has been paid "to the development of special cuts in these cheaper material".

He said that Radiant Gems had developed a range of special cuts and proposes to show the new lines directly to jewellery manufacturers along with high quality Sri Lanka stones.

"Electronic marketing is being developed as a marketing tool in the gem industry. Singapore is making heavy investments in the development of electronic marketing particularly in systems of secure internet marketing. It will be the future center for secure internet marketing with the latest technology in Asia," he said.

Fernando said that recognising these developments, Radiant Gems has authorised B. P. de Silva and Company, a Sri Lankan founded company well established in Singapore, and local entrepreneurs including their own Managing Director, Mr. D. S. Munasinghe, to set up a separate marketing company for Sri Lankan stones.

"One of the purposes of this company would be to obtain consistent volume of work to Radiant Gems International Limited. This now company named WWW Radiantgems Com (Pvt) LTD. will invest in securing an internet marketing system, which will bring work to Radiant Gems International Ltd., by offering the cutting requirements of the new company's orders to Radiant Gems International. In addition to the cutting charges, Radiant Gems International Limited will enter into a formal agreement with this marketing company to secure a commission for using the name Radiant Gems," Fernando said.

Radiant Gems has been faring badly for some years and currently carries Rs. 18.5 million in retained losses in its books.

Although the year ended March 31,1998 saw an operational profit of Rs. 0.5 million earned, slightly above the previous year's earnings, interest charges ran higher and the bottom line was a loss of Rs. 0.4 million.

Fernando said that the company was carrying on a continuous training program in its factory to maintain the highest quality standards using the latest high technic equipment. He was hopeful that once their internet marketing program was completed by around next March, they would benefit from a number of new clients.

He also reported that they have been selected to participate in a trade delegation to Europe and the European Chamber of Commerce has arranged direct meetings with jewellery manufacturers to display their new range of products.

He said the company had consistent orders particularly for cutting emeralds for Israeli clients up to September this year. However, the economic crisis has slowed down this operation too and they were once again working far below capacity.

"It is the intention of the company to make every endeavour to attract additional clients using internet marketing technology as well as displaying it's new range of production including the new special cuts", Fernando said.

The chairman said their principal problem was a lack of consistent work. The proposed collaboration with the new marketing company was expected to maximise this by broadbasing their client portfolio.

Fernando also reported that their case against the Sri Lanka Export Credit Insurance Corporation has not yet been completed due to a change of judges. The case has entered its final phase and is expected to be concluded during the current financial year.

The chairman also expressed his thanks to the Bank of Ceylon for its continued support for the company's development effort and the Katubedda Campus for helping to resolve their technical problems. The Gem & Jewellery Authority too had extended its fullest cooperation, Fernando said.

The directors of the company are: Messrs. W. P. Fernando (Chairman), D. S. Munasinghe (Managing Director), Roland Naftule, P. M. A. Sirimane, Mrs. C. Fernando and Mrs. F. Macan Markar.

Higher wages cost Ceylon Printers profit loss

Ceylon Printers Limited has seen an increased turnover but reduced profitability during the year ended March 31, 1998,, partly due to increases in operating expenses following an increase in salaries granted by the Wages Board for the printing trade and a drop in other operating income.

The company has reported a turnover of Rs.12.5 million during the year, up from Rs.10.3 million a year earlier. But cost of sales too had increased to Rs.9.5 million from the previous years Rs.7.9 and the gross profit of Rs.3 million compared with Rs.2.4 million in the previous financial year.

After discounting net operating expenses of Rs.2 million (Rs.0.7 million the previous year), the company had an operating profit of Rs.0.9 million compared to Rs.1.8 million a year earlier. The after-tax profit of Rs.0.7 million was half the Rs.1.5 million earned during the financial year ended March 31, 1997.

The directors have recommended a dividend of 30% absorbing Rs.105,030 and a transfer of Rs.0.6 million to the reserve.

The company's earnings per share during the year under review at Rs. 20.43 was less than half the previous year's Rs.42.83.

Ceylon Printers has a very modest issued share capital of Rs.0.35 million and reserves of Rs.9.8 million in its books.

Gardiners Limited and Millers Limited are among its major corporate shareholders with over 5% of its issued capital. The other major shareholders are the directors of the company.

The directors of the company are: Messrs. S. Canagaratna (Chairman/Managing Director), P.T. Chinniah (Deputy Chairman), L.C.G. Ratnanather, J.P.S. Ratnanather, R.G.L. de Silva, J.A.S. Ratnasabapathy (Alternate to J.P.S. Ratnanather) and Dr. S. Anandarajan.

Olivetti discontinues manual Sinhala typewriters

Manual Sinhala typewriters produced by Olivetti of Brazil are no longer available as the production plant has closed down, Office Equipment Limited, a member of the Ceylon Printers group has told shareholders.

The company's chairman, Mr. Selvam Canagaratna, said that their turnover had dropped to Rs.25.2 million during the year ended March 31, 1998 from the previous year's Rs.32.4 million largely on account of the loss of the Sinhala typewriter supply.

"Although steps have been taken to establish another regular source of supply for the manual typewriters, turnover for 98/99 is unlikely to improve beyond current levels'', he said.

Canagaratna regretted that no dividend can be declared during the year under review under the circumstances.

The Office Equipment group had seen turnover during the year under review drop to Rs.38 million from Rs.52.1 million the previous year and has posted a loss of Rs.2.1 million against a profit of Rs.1.7 million a year earlier.

The company which has a share capital of Rs.0.8 million was carrying Rs.1.3 million in retained losses as at March 31, 1998.

The directors of the company are: Messrs. S. Canagaratna (Chairman/Managing Director), P.T. Chinniah (Deputy Chairman/Deputy Managing Director), L.C.G. Ratnanather, J.P.S. Ratnanather, W.A. Fernando, J.A.S. Ratnasabapathy (Alternate to J.P.S. Ratnanather) and Dr. S. Anandarajan.

Despite 59% increase in loan loss provisions
Commercial Bank boosts 9-month profits 23%

Despite a very substantial increase in provisions for possible credit losses during the first 9 months of the current financial year ended September 30,1998, the Commercial Bank of Ceylon Limited has improved its after-tax profit by nearly 23%, an interim financial statement to shareholders reveals.

The 9 months under review had seen the bank boosting its turnover 4% to Rs. 2.8 billion while net income from banking activities was up 31% to Rs. 587.3 million.

Although there was a 18.5% decline in non-banking income at Rs. 38.9 million, profit before provision for possible credit losses as a comfortable Rs. 620.4 million, up 26% from Rs. 496.1 million a year earlier.

The bank has made substantial provision in Rs. 122.7 million for possible credit losses during this period, up from Rs. 77.3 million a year earlier. Its pre-tax profit of Rs. 503.7 million compared with Rs. 418.8 million a year earlier.

The after-tax profit of Rs. 378.7 million was up 22.7% from Rs. 308.8 million a year earlier.

With unappropriated profits of Rs. 1 million brought forward, the Commercial Bank was carrying Rs. 379.7 million available for appropriation as at September 30, 1998.

The bank has an issued share capital of Rs. 348.3 million, a reserve fund of Rs. 1 billion and reserves of Rs. 2.4 billion.

Share price plunge hurts NDB bottom line

The National Develop-ment Bank (NDB) has seen a 11% decline in earnings for the third quarter of the current financial year primarily due to the sharp decline in the value of its equity portfolio following the plunge in the Colombo Stock Market.

The NDB made a total provision of Rs.418 million on account of the dimunition of its equity portfolio during the period under review.

John Keells Stock Brokers reported in its research publication that the period under review saw a change in the bank's provisioning policy with regard to bad and doubtful debts.

The NDB changed its general provisioning policy from a flat rate of 3% to a risk rated basis. This resulted in a difference of Rs.311 million in provisioning and add back of about Rs.160 million to the profit and account. The result was an operating profit growth of 30% for the period under review, John Keells said.

The period under review also saw NDB's effective tax rate decline to 25% from 33% in the corresponding period a year earlier as a result of the bank taking advantage of the government's 5% tax bonus awarded for broadbased listed companies.

Additionally, loan growth was up an impressive 29.4% during the period under review against 19.6% growth a year earlier. John Keells said that they believed that loan growth had been significant both in short and long term lending.

The research report also said that the growth in the bank's leasing portfolio had reached an encouraging 12% against the marginal 2.5% growth a year earlier thanks to a strategic re-think of the bank's leasing operation.

The report had downgraded the NDB's forecasted earnings to Rs.702 million during the current financial year from the earlier projected Rs.725 million despite the possible change flowing from the change in the general provisioning policy.

"This downgrade is mainly on account of the decline in the value of bank's quoted equity portfolio. However, we maintain that a re-rating of the Colombo bourse would immediately enhance the bank's profitability'', the report said.

The research report projected loans and advances to grow by 31% in the current financial year with this business picking up through the next financial year up to the year 2000 due to increased lending via the new branches.

The John Keells research also forecast strong growth in the NDB's leasing business over the next two years on account of the bank's ability to reach more customers through its expanding regional branch network.

However, the report said that the NDB will come under competitive pressure in the sphere of its traditional business of term lending and project financing. The commercial banks which are now in this field are able to offer attractive rates on account of lower cost of capital via deposit mobilisation.

"We expect the NDB to counter this threat via volume growth through branch expansion'', the report said.

John Keells regard the NDB as an attractively valued counter and maintains its BUY recommendation.

Cheap Fillipino competition erodes Coco Lanka margins

The Philippines, the world's largest coconut producer, is competing fiercely for export markets in liquid coconut cream and Coco Lanka Limited, Sri Lanka's sole manufacture of this product, is now feeling the heat.

The Sri Lankan company has seen a slight decline in turnover, down to Rs. 58.8 million in the first half of the current financial year from Rs. 62.1 million a year earlier. But the impact on operating profitability, down to Rs. 2.4 million from Rs. 12.9 million a year earlier, has been very severe.

Coconut prices have gone up, it's true. But we have been hit much more by competitors in the Philippines being able to offer much lower prices because of their sharp devaluation. We've had to trim our margins to the bone to retain our market share", a Coco Lanka director said.

According to an interim financial statement to shareholders, the company had a pre-tax profit of Rs. 3.3 million during the first half of this year, down from Rs. 13.8 million during the comparative period the previous year. With the tax liability minimal, the after-tax result was Rs. 3.3 million against Rs. 13.5 million during the first half of the preceding year.

With retained profits brought forward, Coco Lanka had Rs. 44.6 million available for appropriation as at September 30, 1998. The company has an issued capital of Rs. 42 million.

Industrial Finance business shifts from hire purchase to leasing

In an year that saw a distinct shift of its business from hire purchase to leasing, Industrial Finance Ltd. has reported lower profitability despite a higher turnover.

The company which is unquoted, has reported a net profit of Rs. 2.4 million during the year ended March 31, 1998, down from Rs. 6.4 million a year earlier. Turnover during the year at Rs. 42.7 million was up from Rs. 32.6 million a year earlier.

In addition to its operational profit on the finance business, the company also had other income of Rs. 2 million (Rs. 1.1 million the previous year) to earn a net pre-tax profit of Rs. 4.4 million, down from Rs. 7.6 million the previous year.

Since the company was not liable for tax during this year, the pre-tax profit remained the bottom line. With brought forward profits of Rs. 2.4 million added on, the company had Rs. 6.8 million available for appropriation and the directors have recommended a 8% dividend, down from the 20% the previous year, to the shareholders.

The directors have reported that the 30% increase in turnover was a result of an increase in the leasing business during the year which saw a distinct shift from hire purchase.

They said that the move to leasing and increased provisioning for bad and doubtful debts resulted in a lower net profit of Rs. 4.4 million.

They also reported that a rights issue that was pending at the end of the last financial year had been completed and the share capital has been increased to Rs. 7.2 million from Rs. 6.3 million. In view of the Central Bank requirements, they considered it prudent to further increase the issued capital and another rights issue is planned for the near future.

Industrial Finance also reported that they have moved into new offices at Dharmapala Mawatha and had purchased a property close to Hunupitiya Cross Road where they planned to have a permanent office.

The directors of the company are: Messrs. Ray de Costa (Chairman), Rohan R. Tudawe (Managing Director), Sunil de Costa and W. N. Tudawe.

Cargo Boat building earning profits

The Cargo Board Development Company Limited, owners of a commercial building on Janadhipathi Mawatha, Fort, is recovering from damage suffered both from the Central Bank and Galadari bombs and earning rental profits, shareholders have been told.

The first bomb damaged building on Janadhipathi Mawatha to be made operational, the Cargo Boat building is continuing to earn profits for its owning company despite traffic restrictions and the Colombo Fort losing its once preferred status for office accommodation.

Shareholders have been told that turnover during the first half of this year at Rs. 8.9 million was up slightly from Rs. 8.5 million a year earlier and the company has made a Rs. 5 million operating profit for the first half, the same as it made in the first half of the last financial year when the building was re-tenanted.

After discounting interest paid (Rs. O.9 million) and taking credit for non operational income of Rs. 1.9 million, the company had a pre-tax profit of Rs. 6.1 million for the half year under review, down marginally from Rs. 6.2 million earned a year earlier.

While no tax liability has been provided for in 1996/97 on account of brought forward tax losses, the liability for the current year has not yet been finalised, shareholders have been told.

Cargo Boat has an issued share capital of Rs. 34 million, a general reserve of Rs. 23 million and Rs. 11.8 million in retained profits in its profit and loss account.

The company has been boosting its investments which had grown to Rs. 24.4 million as at September 30, 1998, up from Rs. 18.7 a year earlier.

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