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Business

NTB to buy AmEx business
Nations Trust Bank (NTB) is on the verge of buying American Express' banking, foreign exchange and travel operations in Sri Lanka as the global financial services group looks to offload assets under a company-wide restructure.

"It's at a fairly advanced stage," NTB chief executive Maxi Prelis said of negotiations between the two parties.

"But it's not finally signed and sealed. There are a few issues yet to be sorted out."

Prelis would not comment on how much NTB would pay for the business. A signed agreement would be required before the two parties seek approval for the deal from the Central Bank, he said.

American Express' senior country executive in Sri Lanka, Akbar Khan, would not comment on whether NTB was the buyer but confirmed the US-based company was considering the sale of its corporate and retail banking business in Sri Lanka.

"For our foreign exchange and travel businesses, we are evaluating options that could involve the sale and franchising or the establishment of a joint venture," he said.

"We are not exiting Sri Lanka. We are looking at realigning the presence of some of our businesses as part of our global business transformation initiatives."

Khan said American Express would retain and continue to grow the financial institution group of the bank, the travellers cheque group, global establishment services and card operations.

NTB has enjoyed strong growth since it launched in 1999 with the acquisition of Overseas Trust Bank.

While it is likely to take over American Express' banking and foreign exchange operations, the travel business could be of interest to conglomerate John Keells Holdings, which owns a 25 percent of NTB and is a major player in the tourism sector.

American Express's total assets in Sri Lanka are estimated to be about Rs 1.9 billion, with a loan portfolio of around Rs 700 million.

$3 bln in foreign donor aid stuck
A backlog of nearly three billion dollars worth of foreign donor aid has accumulated in government coffers, according to the Poverty Reduction Strategy Paper presented at last week's Development Forum.

The funds are stuck because antiquated procurement procedures and processes have held up their use, it said.

The government intends to increase private sector participation to speed up the implementation of key donor-funded projects, it said.

"External aid disbursement rates will be increased through greater ownership of project implementation efforts, through systematic monitoring at the department and national level, through adoption of simplified procurement and project management procedures, and through the establishment of separate foreign aid impress accounts," the paper said.

External aid disbursements could rise to $600 million this year from $400 million in 2001 if these measures are put into effect, providing a much-needed boost to short-term growth, it said.

VAT postponement urged
By John Breusch
The imminent introduction of the Value Added Tax (VAT) is causing concern in Sri Lanka's business community, with some industry leaders calling for a six month extension to the July 1 commencement date and others warning that the new tax regime does not go far enough.

The VAT - which replaces the Goods and Services Tax (GST) and National Security Levy (NSL) - is set to come into effect in less than a month, although the legislation is yet to be tabled in Parliament.

Nawaz Rajabdeen, vice president of the Federation of Chambers of Commerce in Sri Lanka, said the government should give the country time to recover from last year's economic woes before overhauling the tax system.

"I don't think this [new tax] should be implemented immediately," he said.

"The government needs to do six months of public education before they introduce it."

"The entire business sector is already struggling. This will make it worse. There will be more companies closing because of this [tax change]."

Although the VAT has already been delayed by one month - from its original June 1 commencement date - it is still running to a tight schedule.

The director of fiscal policy, Sujatha Sathkumara, said the legislation should be passed by parliament in early July and would rely on retrospective powers to take effect from July 1.

Finance Minister K.N. Choksy said last week the government had experienced lower-than-expected revenue over the past two months because of delays legislating some of the reforms outlined in its March budget.

"But we are hoping to positively make it up later in the year," he said.

In the budget the government announced plans to abolish the 12.5 percent GST and 6.5 percent NSL and replace them with a two-tier VAT - 20 percent on "luxury" goods and services and 10 percent on "essentials" items.

"Essential" items attracting the lower tax rate are said to include power, petroleum, essential foodstuffs, fertiliser, pharmaceuticals, medical and industrial equipment, agricultural and fishing equipment.

However, Rajabdeen said it was still not known precisely which goods and services would come under this definition.

The Commissioner General for Inland Revenue, B.T. Perera said he could not comment at this stage on how the transition to the new tax regime would take place.

"I can't say anything until the legislation is passed," he told The Sunday Times.

That would leave businesses with little time to make the substantial record-keeping and systems changes the new tax scheme would require.

"There is lots of money involved in the change," Rajabdeen said.

"The [accounting] machinery is not geared up to do this."

But the chairman of the Ceylon Chamber of Commerce, Chandra Jayaratne, said he was not concerned about the timing of the VAT nor was there uncertainty about how the new tax regime would operate, because the chamber had seen drafts of the legislation and its amendments.

However, Jayaratne said any benefits of the VAT would be undermined as long as the tax applied only to imports and manufacturing, and not to the retail sector. "It doesn't cover the whole value chain," he said.

Jayaratne said a constitutional amendment was required to enable tax collection to take place at each end of the economy.

The Chamber is also concerned that the VAT will create cash flow problems for exporters.

Although the government says it will take one month to provide VAT refunds to exporters, Jayaratne said refunds usually take about three months.

"The [tea] industry will have Rs. 120 million to Rs. 160 million tied up in working capital which they can ill-afford at this stage," he said.

The new tax regime, which is designed to strengthen the government's revenue base and eliminate overlap between taxes, has been welcomed by donor groups like the International Monetary Fund as an important step in the country's structural reforms.

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