The Sunday Times on the Web Business
19th April 1998

Front Page|
News/Comment|
Editorial/Opinion| Plus | Sports |
Mirror Magazine

Home
Front Page
News/Comment
Editorial/Opinion
Plus
Sports
Mirror Magazine
Contents
Presented on the World Wide Web by Infomation Laboratories (Pvt.) Ltd.

New regulations to block control of private banks

By Asantha Sirimanne

Central Bank is to tighten the rules on ownership of commercial banks to prevent the covert control of such institutions.

The existing direction issued under Section 46 (d) of the Banking Act, prevents any single shareholder from owning more than 15 per cent, and connected parties and companies from collectively holding more than 18 per cent of equity of a licensed commercial bank.

However the Monetary Board of the Central Bank may allow larger share holdings to be held on a case by case basis.

Financial sources say the new directions will eliminate any existing ambiguity in the interpretation of the directions and prevent parties from holding larger stakes in commercial banks without the approval of the Central Bank.

Though some business groups seem to have effective control of some banks, analysts say the Central Bank has not been able to effectively enforce existing regulations in some cases.

The Monetary Board last year allowed DFCC to purchase a stake in excess of the specified limit in Commercial Bank of Ceylon.

Another aspiring commercial bank, the National Enterprise Bank was not issued a banking license by the Central Bank earlier because it was not satisfied with NEB's ownership structure. Vanik Incorporation which bought into Pan Asia Bank is also awaiting Central Bank approval to increase its stake in the bank.

The Stassen Group which has also bought into Hatton National Bank appointed another director to its board last week.


Mind your business

by Business Bug

Perky Perc

The talk of the town is the flying deal with the Emirs and how the perky boys had to cope with the tricky circumstances.

In the end with the committee insisting on its pound of flesh from the commission, somebody might be sacrificed, we hear.

So, the time has come for those reforming public enterprises to reform themselves or to 'restructure' as they themselves like to call the procedure.

Gist of GST

The GST is in operation but the Inland Revenue chaps are being flooded with queries, complaints and appeals for exemptions.

The list for the last category is piling up and threatens to make a mockery of the tax, officials say.

Now it has been decided, therefore, to review the entire GST process at the end of the first quarter of its operation by the end of August, this year.

Star struck

The apparel maker with three stars to his credit is negotiating a tight corner because those who have funded his factories want him to sell twelve of them.

But he would have none of it and intends to fight it out. He pleads his case with the powers that be convincingly.

Now it is likely that he would be given more time to prove his worth, which he is confident of doing, given the new orders that have come his way.


Paying for your pension

The government is considering a radical change in the pensions scheme, probably the only incentive for people to join the jaded public service, with plans to make it a contributory one, official sources said.

They said the pension scheme was likely to be a contributory one, on the lines of private sector pension schemes, in which the employee also makes a contribution. An economist at a private think-tank institute said the plan was a good one and would cut government spending but would be hard to get through parliament and public sector unions.

"With 1999 likely to be the election year when public programmes and the budget are generally designed to attract votes more than anything else, the government could face some opposition to the move," he said. Parliamentary elections are not due until the year 2000.

Deputy Treasury Secretary P.B. Jayasundera told a recent Central Bank-organised seminar that public sector reforms and restructuring of the government pension schemes formed the longer term strategy of the government.

"While in the short term, adjustments involve the rationalisation of authorised cadre, monitoring of staff movements, rationalisation of functions and staff of government agencies and the continued freeze of recruitment and a moratorium of institutional proliferation, the longer term adjustment will involve closure of redundant departments and statutory agencies," he said.

Dr. Jayasundera noted that in the wake of large pension costs in the public service, restructuring of the government pension system on a self-financing basis will be necessary to sustain the pension scheme of public servants. Government pensions are non-contributory and in present times, this is believed to be one of the factors that draw people to the public service, where salaries and perks have been speedily overtaken by the private sector. Some private sector firms have their own pension schemes in addition to the Employees Provident Fund and the Employees Trust Fund.

In 1996, the public sector totalled 1.16 million employees out of a total labour workforce of 5.5 million. The total number employed in the public service by 1997 is believed to have dropped in view of the sale of plantation companies and government firms. The cost of pensions in 1996 was provisionally estimated at Rs. 15.5 billion.

Donor agencies are also stressing on a downsizing of the civil service and cuts in government contribution to the pension service. An economist at an international lending agency said there were two ways of cutting costs. There is what is called the Pay-as-You-Go scheme in which contributions are made like the current private sector schemes. The second scheme entails the government and employees contributing towards a fund that takes care of the pensions.

He said that, in view of poor government sector salaries, it would be unfair for the government to impose fresh obligations on employees in the form of new deductions from the salary for the pension scheme. "We believe the government would raise salaries proportionately to allow these payments."

While this may not solve the problem entirely as the increased salaries could add to costs and a rise in government expenditure, it would create the practice of employees paying for their pensions instead of getting a handout when they retire.


Courier boom amidst crisis

By Mel Gunasekera

In the wake of postal services go-slow and strike, private delivery services have stepped into the breach to satisfy frustrated ordinary mail customers.

Citypack, the domestic delivery arm of United Parcel Service has been deluged with orders. "We cannot ignore our regular clientele at a time of strike. But there is a limit to extra orders we can accommodate," an official said.

TNT Mailfast, operated by Ace Cargo (Pvt) Ltd, estimates its business to have grown by a modest 15 per cent.

TNT Mailfast officials said they were not a direct competitor to the normal postal service, but were providing an additional service to courier documents at a lower price.

The minimum weight accepted is 10 grams. If it weighs more than 500 grams clients are adviced to use their sister service TNT Express. Unlike TNT Express, Mailfast does not provide proof of delivery to its clients, hence the lower price.

To send documents to the US may cost around Rs. 60 for a normal registered airmail letter. But to send it through a courier company which delivers the document to the addressee on the same day, may cost up to 27 times more.

Delivery boys here are also striking it rich, earning upto Rs 30,000 a month in some cases, courier companies say.

Courier companies are also attempting to pass on some of the benefits of increased business to their customers.

DHL is offering discounted prices up to 15 per cent to customers during the strike. The company has extended collection hours and assigned additional staff to cope with the urgent shipments.

Though there is strong demand for courier and express mail delivery in the wake of the postal crisis, courier operators largely depend on the apparel and other export industries which bring in nearly 80 per cent of their revenue. The rest constitutes students (who send admission forms, exam results, exam fees), and medical reports.

However, operators say the local courier market is saturated. At present, there are 15 courier operators, including four major international operators in Sri Lanka. Since the bulk of the revenue comes from the apparel industry, operators fear the impending phase out of quotas would erode their revenue and market share. "Though other exporters too are serviced, it is the apparel export industry that keeps the international courier operators running," one courier official said.


GST may fatten profits of some firms

In the immediate aftermath of GST, some manufacturing companies are likely to see their profit margins increase in the short term before competition and cost increases take their toll

Some of the listed companies which are expected to experience this are in the electrical appliances, household products and liquor businesses.

Though the reduction in tax after GST should in theory result in an immediate drop in the price of a product which was charged at a higher rate under the old Turnover Tax Act, many businesses have no intention of reducing prices, resulting in the government losing the revenue and the companies themselves gaining it.

"Manufacturing companies would see their profits increase during the first two quarters of this year," says Pravin Ramanadan, an industry analyst at CT Smith Securities.

Companies are also likely to reduce their overall GST payments by gaining input credit or setting off GST paid by suppliers against the total GST due by a company to the Inland Revenue. This is one of the fundamental features of the GST system that prevents turnover based taxes from being added together and snowballing as raw material and semi-processed goods are processed and sold from firm to firm.

One of the reasons prices will not come down immediately is that, under the old Turnover Tax Act, the TT components was not separately shown in the sales invoice but built into the sale price. However in sectors such as telecommunications, TT was usually shown separately and the companies have been more than willing to reduce the tax charge.

Liquor manufacturers have already declared that they will not bring down their prices, because the government is expected to increase the excise duties to compensate for any benefit from lower GST.

Electrical appliance making units of such as Singer and Hayleys and Metalix also had to pay 18 per cent TT. However few expect lasting benefits to the electronics industry from the changeover.

"The electrical goods market is very competitive," says Panduka Ambanpola, Head of Research at Jardine Flemings HNB Securities. "Over the longer term it will be difficult to keep prices high, others will undercut, so there won't be super profits."Costs in the industry have also been rising over the past two years, with no significant increase in retail prices. As a result while turnover grew, profits have not kept pace. Even beer prices have stayed put in the recent past, though costs have been inching up.

Financial services which is exempt from GST may even see marginal cost increases as they will have to pay GST on most of their inputs.


More Business * Sin taxes to skim ill gotten gains * Adopting positive measures in tourism * New Bank of Japan Chief's job to restore lost prestige * SADS helps out shipping lines * S. Africa's National Line in Colombo to promote trade

Business Archive

Front Page| News/Comment| Editorial/Opinion| Plus | Sports | Mirror Magazine

Hosted By LAcNet

Please send your comments and suggestions on this web site to

The Sunday Times or to Information Laboratories (Pvt.) Ltd.