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19th April 1998

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Sin taxes to skim ill gotten gains

The government is likely to raise excise duty on hard liquor and cigarettes to skim off any benefit gained by the industry from the introduction of GST, The Sunday Times Business learns.

Distilleries Company of Sri Lanka is likely to make a saving of at least Rs 450 mn after turnover taxes were reduced from 18 per cent to 12.5 per cent.

However the government is expected to raise excise duty on hard liquor to drain the gain away. Ceylon Brewery which has much lower revenue is expected to save only around Rs 60 mn a year.

Ceylon Tobacco has also been paying TT at 18 per cent and now pays GST at only 12.5 per cent. A company spokesman claimed that the effect of the changeover will be neutral.

However analysts expect the government to also increase excise tax on tobacco, to compensate for the loss of revenue from GST on tobacco.

Demerit goods such as tobacco and alcohol have become a major cause of death in the country overtaking the war, and also burden the economy with billions of unaccounted costs which are only now being recognised. New studies are coming up with the finding that existing tax levels on the industry does not compensate for all the losses caused by alcohol and especially tobacco to the economy.

Adopting positive measures in tourism

The hotel industry has shown a long-termism in its approach to investment. Despite the ups and downs of tourism and the threat of terrorist activities affecting the industry adversely there has been a continuous expansion in investments in hotels. Such expansion has also been accompanied by an increase in high class tourist accommodation outside Colombo. The uncertainty of tourism is quite clear from our recent experience. In 1994 and 1995 tourist arrivals exceeded 400,000. In 1996 it dropped by as much as 100,000 to around 300,000 arrivals. With a slight improvement in the security situation, tourist arrivals increased to 350,000 in 1997.

This figure is in fact about 50,000 less than what we had achieved in 1982. Although much was expected in 1998 the East Asian crisis appears to have depressed tourist arrivals and the prediction is that arrivals would increase by around 15 percent. Despite such a background, quality hotels have come up in the up-country areas, beach resorts in the South and a few in and around the archaeological sites.

There also appears to be a shift in hotel construction to luxury hotels outside Colombo. An expansion of hotel facilities for the more discriminatory tourists could enhance tourist earnings. This is indeed a good development as there was an imbalance in good hotel accommodation, which was over developed in Colombo and under-developed in tourist resorts.

The security situation has also resulted in tour groups being moved out of Colombo to the scenic archaeological and beach resorts rather than accommodated in the city. This too is a healthy development as one has to admit that Colombo has little to offer tourists. It is the diverse, natural and archaeological locations which are the real attractions to tourists.What Sri Lanka needs is not necessarily a larger number of tourists. There is a need to attract tourists who spend much more in the country rather than those who live on a shoestring income. Some of the new facilities are specifically geared to cater to these tourists.

For a long time Sri Lanka has tended to attract cheap spending tourists and our rates are indeed one of the cheapest in the world. The hotel rates in Colombo are a fraction of those in nearby Maldives. Why should that be? There is a need to market out tourism among the high spending rich travellers and provide them with excellent facilities which would bring the country much higher returns on our investment.In order to increase resilience of the industry and cope with the vicissitudes and uncertainties of foreign tourists, it is essential that out hotels cater to domestic tourism as well. Hotels require to develop a balanced policy between foreign tourism and domestic tourism. This is indeed in their interest.

There is increased evidence of a more travel oriented local community. Hotels should attract them by attractive and innovative packages as some have already done.

It is also necessary to increase earnings from tourism by offering foreigners much more of our local products and by developing ancillary tourist products. Unfortunately the country has lacked adequate iimagination to produce souvenirs that tourists may like to take. Some of these souvenirs are too highly priced. There is still a real possibility of making tourists buy more of our products if prices are right and the packaging is attractive.

Tourist earnings are an important part of our national income. It is also a useful contribution to our foreign exchange earnings. Despite the threats of terrorism the country must adopt sales techniques by which the high spending tourists are attracted to our tourist locations which offer so much in terms of natural beauty as well as historical sites.

Hotel investors appear to be confident of the long-term success of their hotels but their efforts require to be assisted through positive measures to attract more tourist traffic and increase tourist earnings.

New Bank of Japan Chief's job to restore lost prestige

Masaru Hayami, a Nissho Iwai Corp counsellor has been appointed the new governor of the Bank of Japan. He replaces Yasuo Matsushita, who recently resigned to take responsibility for the arrest of a senior official of the bank on charges of bribery an embassy release said.

Hayami is a former BOJ official and also the previous chairman of the Japan Association of Corporate Executives, one of Japan's four leading business organisations. At the same time, Sakuya Fujiwara, a journalist and advisor of the editorial board of Jiji Press, and Yutaka Yamaguchi, an executive director at the BOJ, were appointed as senior deputy governors.

Under the revised Bank of Japan Law, which came into effect in April, the number of senior deputy governors will be increased to two. The previous senior deputy governor Toshihiko Fukui, who had been thought certain to become the next governor, resigned together with Matustita to take responsibility for the bribery incident.

The BOJ must now set about restoring its prestige under Hayami, a man "with a good knowledge of international finance who has thrust requests upon politicians as the mentor of the business world."

The roots of Hayami's appointment as the new governor of the BOJ lie in the recent disclosure of a bribery scandal involving a senior official of the bank. This was the first time in the 116-year history of the BOJ that such an incident had been revealed.

On March 11 the Tokyo District Prosecutors Office arrested the chief manager of the Capital Markets Division of the central bank's Credit and Market Management Department on suspicion of receiving bribes. It is alleged that in return for receiving entertainment equivalent to Y4.3 million from two commercial banks, the arrested official leaked confidential information to them concerning financial policy and other matters.

Because of the arrest, Matsushita was forced to resign as governor - the first ever BOJ governor to resign before the end of his five-year term.

The series of entertainment-for-favours scandals, which started with the arrest of a former Ministry of Finance bureaucrat working as an executive director for the Japan Highway Public Corporation and in which financial institutions have been doing the bribing, had already led to the arrest of four officials at the Finance Ministry, including a career deputy director, and to the resignations of Finance Minister Hiroshi Mitsuzuka and Administrative Vice Finance Minister Takeshi Komura.

The BOJ is a company in which the government owns 55% of the shares. Since the Bank of Japan Law stipulates that employees are quasi-public servants, however, they are liable to be punished under the Penal Code for the crime of bribery.

Newspapers were extremely critical in their reports on the arrest of the BOJ official. "Because of the arrest of a senior official at the central bank, which is at the centre of the financial system, and moreover of an official in the Credit and Market Management Department, which is at the core of policy-making, confidence in the BOJ has been shattered, Asahi Shimbun says.

The markets responded harshly, too. Immediately after the arrest, the average share price on the Tokyo Stock Exchange fell considerably, and the yen was heavily sold on the Tokyo Foreign Exchange Market. For this reason, Matsushita telephoned Prime Minister Ryutaro Hashimoto on the evening of March 11 to announce his intention to resign. According to newspaper reports, the appointment of a new leadership. including the new governor, was considered "mainly at the Prime Minister's Official Residence" Mainichi Shimbun quotes.

The new governor, Hayami, is a former official of the BOJ, having served in such posts as director of the Foreign (now International) Department and executive director in charge of international affairs.

After his retirement from the BOJ, he became involved in business as the president and chairman of Nissho Iwai Corp., a general trading company. He also served as chairman of the Japan Association of Corporate Executives.

Although some people have "voiced concern" (Asahi) about his age, 72, apparently the decisive factor in Hayami's appointment was the experience he gained in his BOJ days, as the member of a team of currency experts, in dealing with an international currency crisis.

Regarding the appointment of Fujiwara, a journalist, as a senior deputy governor, the Yomiuri commented that "the decision was made because he has a good knowledge of finance as an economics reporter; has many acquaintances in financial circles, and is widely known, which is necessary for a senior deputy governor."

The BOJ governor's term is five years. Ever since the twenty-second governor, Tadashi Sasaki, the post has been filled alternately by officials of the BOJ and officials of its supervising ministry, the Finance Ministry.

Matsushita, the 27th governor, was formerly an administrative vice minister at the Finance Ministry, and Hayami, his successor, hails from the BOJ, so this custom has been continued.

With the appointment of a private-sector journalist and a BOJ executive director as senior deputy governors, however, "people close to the Finance Ministry, including former bureaucrats at the ministry, have been omitted (from the new leadership)" (Mainichi).

SADS helps out shipping lines

Mass Logistics & Shipping Pvt, Ltd. is a new concept that can compete with any market shipping line to-day. This new system is the brainchild of S.A.D. Sumanasiri, a livewire earlier in the Ceylon Shipping Corporation'.

According to SADS' new concept, any excess staff can be reduced but still giving greater output in the work system.

This new concept will be a boon to all shipping agents in any field of shipping, be it administration or any other, and results in the reduction or mental strain that is normally associated in this field. The new system has already become popular with all allied shipping agents.

SADS has an experience of over 20 years in the venturing out in outsourcing in shipping and the new concept is a realization of a dream he has been nurturing for the last three years.

In future, shipping lines do not have to bother on investment of Hardware and Liveware for Professional Selling, since SADS provides that service to any line, if only they have result oriented staff determined on performance.

S. Africa's National Line in Colombo to promote trade

A plaque presentation ceremony was held on board m.v. 'S.A. Oranje' recently to commemorate the vessel's maiden call at Colombo. Deputy Minister of Ports, Rehabilitation and Reconstruction, Reggie Ranatunga, accompanied by M.N. Junaid, Secretary to the Ministry of Ports, Rehabilitation and Reconstruction, presided over the on board ceremony, which was attended by several key personnel of the Sri Lanka Ports Authority.

The Deputy Minister presented the plaque on behalf of the Sri Lanka Ports Authority to the Master 'S.A. Oranje' who in turn presented a plaque on behalf of its owners M/s. South Africa Marine Corporation (Safmarine) of Cape Town, to the Deputy Minister.

Safmarine is Africa's largest shipping company having interests in all areas of shipping such as liner, reefer and bulk. In 1991 Safmarine acquired 49% of the liner subsidiary of major Belgian Operator Compagnie Maritime Belge (CMBT).

In 1996 Safmarine and CMBT liner operations were merged to form SCL (SAFMARINE AND CMBT LINES N.V.).

SCL controls more than 55 ships, owns around 100,000 containers and has a turnover of more than one billion Rands.

Ownership of the new joint company SCL rests 51% with Safmarine and 49% with CMBT. But since Safmarine already has a 49% stake in CMBT, this gives it effectively 75% control in the SCL. It is one of the largest liner shipping operations in the North South Trades, and certainly the largest to and from Africa.

Annually, SCL moves more than 500,000 teus in the following trades:

o South Africa - Far East o UK/NW Continent - South Africa o North/South America-Southern Africa-Australasia o Europe-West Africa o Europe-East Africa o Europe-Mediteranean-Gulf-India-Pakistan o Southern Africa-Southern Ocean oIntra-Europe short sea service

The most important core trade of Safmarine has traditionally been Europe-Southern Africa and presently Safmarine is the principal line in the Southern Africa Europe Container Service (SAECS) consortium which operates a weekly seven-vessel service from UK/N.W. Continent to South Africa.

Safmarine's deployment in this service is four 3000 teu vessels. they are also partners in the South Africa Mediterranean Container Service (SAMCS) offering a fortnightly service with four 1400 teus vessels.

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