15th February 1998

Infact Centre to process apparel documents

The new Infact Centre established to streamline customs formalities for the non-BOI garment factories is to begin operations today.

The new system would mean apparel exporters are exempted from paying duty on all their imports. Instead, each factory would have to submit a monthly report to the Inland Revenue Department, who will monitor the BTT and defence levy payable on all local sales.

The new centre will house officials from the customs department and ports authority. The apparel exporters are also appealing to the Industries Ministry to house some of their officials at this centre to speed up the clearing process.

"Hats off to the Customs Department, they took a positive step to implement budget proposals which small and medium factories had been asking for a long time," President Sri Lanka Chamber of Garment Exporters, Cassian Fernando said.

Apparel exporters are also asking to be exempted from Goods and Services Tax (GST) payments, once it comes into operation this year. At present, once their goods come in, they are exempted from paying GST for 45 days.

"This is not a practical method, as we can't export within 45 days. We have to prove that we did not sell anything to the local market to get this exemption, which is unnecessary paperwork for us," another apparel exporter said.

The Sunday Times Business understands that apparel exporters have appealed to Deputy Secretary Treasury Dr. P B Jayasundara to exempt the industry from GST altogether. "We are still awaiting for a favourable response from him," he said.

New foreign exchange forms to be introduced

By Mel Gunasekera

The Central Bank is to tighten procedures relating to the issue of foreign exchange by introducing new documentation, to prevent abuse of Sri Lanka's relaxed exchange controls.

The Central Bank has found that the present declaration form is not really format in a legal format and has a lot of loopholes, unlike the previous form, which was issued under certain sections of the Exchange Control Act, financial sources said.

"The Central Bank is implementing many prudential methods to curb the flow of unnecessary foreign exchange due to the loopholes in the forms. The new form to be introduced soon, will be more legally binding, and on similar lines as the old form," a banking official said.

Since accepting certain conditions of IMF's Article 8 in 1994, the Central Bank relaxed restrictions on foreign exchange controls. Banks were informed that they can release foreign exchange to bona fide applicants at their discretion.

Applicants were requested to make declaration on Form 1 giving details of their names, addresses, travel destinations, passport number, national identity card numbers, amount of foreign exchange required for their travel.

However, authorities had found that some persons were abusing this relaxation, and submitted improper documentation to banks to obtain more foreign exchange in the names of third parties. Some of these funds could have been used for illegal purposes.

Authorities had found that some of the addresses and even signaturessubmitted on documents were incorrect. At the time of relaxation, banks and foreign currency dealers did not have to endorse in the passports the amount of money being taken out of the country. This led to certain people buying foreign exchange from various banks making it difficult for authorities to keep track.

Some people were deliberately under invoicing their goods, so that they paid less duty. Others in connivance with their overseas partners, under invoiced goods, and later flew out in person to pay their supplier the balance money in foreign exchange.

In the light of all these violations, the bankers once again decided to endorse the passport of travellers to keep tabs on the quantum of foreign exchange being taken out of the country.

Since reintroducing the passport endorsement, large issues of foreign exchange have dropped.

"This shows that most of the earlier issues were mainly abused for otherpurposes," the banker said.

Bankers were of the view that Sri Lankan society was not disciplined enoughto make proper use of foreign exchange relaxations.

Due to ad hoc methods of relaxation and the lapse of regulation, racketeers continue to abuse the system.

Lack of sufficient resources has prevented the Central Bank from getting an accurate figure on the flows of forex, and illegal payments. It also made it difficult to classify the purposes for which forex was taken out of the country.

"We hope the new exchange control form would reduce the opportunity for illegal activities," an official said. "Genuine travellers can continue totake foreign exchange for their needs."

Tea: sympathy and productivity

Once again the tea plantations are struck with a wage dispute. The ork stop page is likely to lead to a loss of production on the estates.

If the strike continues over a long period, it would result in the country's tea production falling.

Further, a prolonged strike would not only lead to a loss of income immediately but unattended tea bushes are a problem for the future. There may be good grounds for paying tea plantation workers a higher wage. They are after all the backbone of this industry which is highly labour intensive. Equally true a large wage increase without a commensurate improvement in productivity could threaten the viability of tea plantations.

In discussing wages on the tea plantations it is also pertinent to realise that labour shortages are creeping into the estates. It is predicted that at the turn of the century or soon after there would be a serious shortageof labour on the estates, if radical changes are not effected.

Also, one should be reminded that estates produce less than half of Sri Lanka's tea. The major portion of tea is produced on small holdings which are far more productive.

The plantation trade unions are extremely shrewd. They strike when tea prices are hot. Some years ago the late Dr. Colvin R de Silva, a veteran

trade unionist himself, and a former Minister of Plantations, analysed the reasons for the CWC's striking successes.

The trade union took up their cause when tea prices were high. A work stoppage means a loss of income for the plantations. The management is more likely to give the higher wage at such a time by balancing their immediate losses with the costs of the wage demands. The demand also appears more reasonable when prices are high and the industry is earning profits.

There are several key issues with respect to tea plantation wages. The first is the high proportion of wage costs in tea production. About 60 to 70 per cent of the cost of tea production is labour costs. Therefore any

substantial increases in wages imply a higher cost of production.

The second factor is that tea prices tend to fluctuate in the international market. Therefore wages, which seem affordable when tea prices are high, could be a burden when prices fall. The third factor to

remember is that labour productivity on our estates is the lowest among the main tea producing countries.

Notwithstanding the above factors, there is little doubt that estate labour is lowly paid and that they deserve a higher wage which would ensure a better standard of living. Pertinent to this is the fact that the costs of basic living items have been rising and their wages are not keeping pace with these price increases.

In fact their lives are made tolerable only to the extent that several members of the family work on the estates and their pooled family income is higher, they are provided housing on the estates, and they live very simple lives. Given their arduous work tasks and low level of living, there should be considerable sympathy to increase their wages.

The optimum solution to these problems is to ensure that labour gets their due share of increased productivity. Tea plantation workers wages should be tied to productivity increases. Productivity in this context is a combination of increased yields related to price, which economists term revenue productivity.

One practical way of forging a linkage between wages and productivity and providing an incentive for better labour output is to stipulate higher work norms. Workers who achieve levels higher than the minimum stipulated norms would be entitled to higher earnings.

There is a need to fuse the sympathy one feels for the low living standards of the tea plantation workers with the long-term interests of the tea industry. Tea estate management companies must empathise with the plight of the workers and give them a just and living wage. Such increases in wages should however be tied to work norms and labour productivity.

Such a complementarity would ensure increased wages and improved living standards of the workers and the viability and sustainability of the tea industry.

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