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10th May 1998

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Tea: the ups and the downs

By Feizal Samath

Sri Lankan tea production this year is likely to remain at last year's record level - maybe a little less but not more - while annual earnings could go up as prices show an improvement over 1997 rates, a senior tea industry official said.

Chrisantha Perera, Director of tea broker Forbes Ceylon Ltd said that production this year would match upto last year's all-time high of 276.8 mn kg. "If ever there is a shortfall, it would be marginal. On the other hand, it is unlikely that we would exceed the 1997 figure," Perera, a veteran tea trader told The Sunday Times Business, in an interview analysing tea industry trends this year.

He said unconfirmed reports indicated that India was buying tea from Indonesia for its domestic consumption. If reports were true, this would open up an entirely new market for Sri Lankan tea. Tea production in the two months to February this year was five million kg more than in the same period in 1997 and general expectations is that first quarter output this year would be around 60 mn kg, against 54 mn in January-March 1997.

March tea figures - obtained from estates - which are normally out by around late-April have been delayed due to the postal strike. Overseas, crop developments centered around Kenya where first quarter production at 86.5 mn kg showed a phenomenal rise from the corresponding 1997 period figure of 44 mn kg.

Kenyan output last year was affected by a disease and other factors. But Perera noted that inspite of the rise in Kenyan output, there was no dramatic oversupply scenario in the world.

Discussing market prices, the Forbes broker said that the Colombo auction average price was very favourable and was Rs. 40 to Rs. 50 higher in the first two months but the level of increases had fallen by March/April.

He said the industry was moving into the cropping season and it was hoped that prices would stay at these levels, if the high quality of the tea was maintained.

The two problems confronting Sri Lankan tea is the crisis faced by a major local buyer for the CIS and the inability for Colombo to sell direct to Iraq, once Sri Lanka's biggest tea buyer. The local CIS buyer - who purchases an average eight mn kg a year - has been unable to resolve some problems with his CIS partners.

In view of the UN sanctions on trade with Iraq, Colombo is selling tea to Iraq through Jordan which is not the ideal arrangement and local traders are hoping that some settlement would be reached to enable direct sales which would raise revenues substantially.

Tea exports are also on the rise, at least for the first two months this year. In the January-February period, exports totalled 45.6 million kg compared to 38.9 mn in the same 1997 period while revenues - during the comparative periods - totalled Rs. 8.4 bn and Rs. 5.4 bn, respectively. Perera said that if current price trends continued, export earnings this year would be comparatively higher than 1997 in rupee terms.

On the management and ownership of estates, Perera said that plantation companies may see profits shrink in view of an additional wage bill of Rs. 60 to Rs. 70 mn rupees per year per company and other costs.

He said most companies were drawing from a special Asian Development Bank fund for capital development and each company was expected to invest Rs. 100 mn rupees annually under a five-year programme. Investments would be made in the field, factory, human resources, better housing and other infrastructure to help workers, and in diversification, ultimately creating more and better quality production and a contended workforce.

The popularity of tea as a beverage was flattening out - volumewise - in developed markets like Europe and the United States because though the number of cups per person hasn't reduced, the quantity has due to the use of tea bags and flavoured teas.

In the Middle East, Japan and the CIS, however consumption was growing. The Forbes broker said that global consumption was expected to rise by 4-5 per cent a year.


More jobs under SAPTA

Will SAPTA or SAFTA endanger the local industry or throw people out of their jobs? No way!! That in essence was the argument trotted out by a panel of trade experts to an interested audience - trying to grapple with the South Asian Tariffs structure and the South Asian Free Trade zone concept - at the Chartered Institute of Management Accountants (CIMA) auditorium last week.

The seminar on SAPTA/SAFTA - which means the South Asian preferential trading agreement/South Asian Free Trade Area - saw the panel led by Trade Minister Kingsley Wickremaratne, allay fears of local industry being swamped with the twin developments, buttressing it with examples to show why.

Wickremaratne, in a very detailed discourse on the benefit of regional groupings, said that if South Asia didn't band into one region and become an enlarged marketplace to work with, its people would be left behind as other groupings strode ahead.

He said SAPTA would create more jobs, more employment and more opportunities for residents in this region, which he noted would be the fastest growing in the world in the next millenium.

While SAPTA aimed to reduce tariff restrictions in the region, SAFTA would allow the free movement of capital, goods, services and people across borders.

"I am a firm believer that this region would be a free marketplace faster than the time taken for any other region (like EU for instance) to develop because leaders of South Asia are keen on quickening the pace of regional development," the minister observed.

South Asian leaders have put down the year 2001 as the deadline for the region becoming a single marketplace, bringing it forward from the earlier proposal of reaching this phase of development by 2005.

Discussing the enormous potential of networking and internet-guided business as the market of the future and the use of strategies in the marketplace, Wickremaratne said it was poor tactics to speak of poverty at international business conferences.

He said that, at a recent conference the seven countries in South Asia spoke in seven different voices, instead of ideally a single voice strategy, and laid a lot of emphasis on poverty.

"We should get out of this eternal focus on poverty, when we talk business. There is poverty all over the world. The United States has poverty but does not speak of it when doing business. The United Kingdom has poverty but does not push this point when talking business," he said.

He said poverty, by virtue of the fact that it is the highpoint of the agenda of countries in the region, has become big business in the west and western aid agencies like CARE for instance go round "with the begging bowl" to help the poor in our region.

Wickremaratne said that, with huge funds at their disposal, aid agencies "live it up" with senior executives travelling first class and staying in luxurious hotels, as they visit poor countries to dole out this cash. The so-called "poor" countries then have to put their own structure in place - like a special government department to distribute this aid while spending huge sums on staff, cars and other costs.

"Finally after taking all these costs into consideration, less than 20 percent of the original funds allocated for the poor is doled out to the beneficiaries," he argued, emphasing that the bulk of the funds allocated to the poor go for administrative costs.

Dr Saman Kelegama, executive director of the Institute of Policy Studies, took up a similar position of SAPTA and SAFTA benefiting Sri Lankans. He advocated a Sri Lankan strategy vis-a-vis SAPTA/SAFTA to be heavily focussed on India which has a huge middle-class population of 250 to 300 million people who are able to purchase the good things in life.

The Sri Lankan strategy should be aimed at developing buying markets in India, he said. "Ideally we should also aim for buyback deals, like Indian companies setting up joint ventures in Sri Lanka - because Indian firms can benefit from a more flexible bureacracy than in India - and selling back to India the goods produced," he said.

He said SAPTA won't affect the local industry because there were safeguards in the system that permits some protection for local industry. Granville Perera, past vice president of the SAARC chamber of commerce and a leading industrialist and chamber personality, in his presentation reflected the same theme. "SAPTA will not wipe out local industry.

Tarriff concessions have been given to products that have no local competition," he said. He said that if local manufacturers could join hands with the business giants of India and Pakistan to access specialised niche global markets, "I believe that much can be achieved, and the survival of local industry, can be accelerated to grow." Perera said the problem that local industry faced was far from the issue of SAPTA. It was more to do with the cost of production of goods which is very high in Sri Lanka.

The disadvantages to local industry were many like the high cost of finance, cost of power, a less productive workforce, lack of local raw material, among other issues, he said.


CDC opens new office

Commonwealth Development Corporation (CDC) has announced the opening of a new office in Colombo, a press release said.

CDC has been investing in Sri Lanka since 1984 and has an investment portfolio of £50m in businesses ranging from private power to venture capital funds.

Steven Enderby has been appointed as CDC's Country Manager, the release added. Mr Enderby will continue to manage Ayojana, a joint venture between CDC and NDB, the release said.

CDC is Britain's Overseas Development Finance Institution and a significant element in its development programme.

In October 1997 the British Prime Minister , Tony Blair, announced a new public/private partnership for CDC at the Commonwealth Business Forum in London whereby private capital would be introduced into CDC, the release added.Based in London, with 27 overseas offices, CDC concentrates on poorer countries and those carrying out economic reform programs. Its purpose is to contribute to development by investing equity and loan capital in and providing management support to the operations of new and existing financially viable and developmentally sound businesses in the private sector.

As at December 31, 1997, CDC had investments totalling US $2.6 billion in over 400 businesses, with US$ 69m in South Asia, the release added.


New Air Separation Plant cost Ceylon Oxygen Rs. 400 mn

Ceylon Oxygen Ltd (COL), has made its largest investment of Rs. 400 mn for a new Air Separation Plant, the largest of its kind in Sri Lanka.

The plant was financed by a concessionary NORAD (Norwegian Agency for Developments Co-operation) loan, a rights issue of Rs. 180 mn and internally generated funds.

The Norwegian loan for 14 mn Norwegian Kroners was granted at an interest rate of 0.75 per cent per annum to part finance the new plant. This loan is repayble in eight semi-annnual instalments commencing June 2000. "This is the only significant Norwegian investment in Sri Lanka todate," Chairman COL, R N Hapugalle said last week.

The new plant with a capacity of 100 cubic metres per hour, will replace the old plant and service increased market demand for purified oxygen and nitrogen. The company called for international tenders which was awarded to Cosmodyne Inc., a reputed company which works for the US Defence Department. Bids were also received from Germany, Italy and UK. It will cater to high tech industries which require high purity gases.

COL produces industrial/medical gases and liquids (oxygen, nitrogen, nitrous oxide, carbon dioxide, dry ice and dissolved acetylene). The company has also diversified into trading electrodes, tansformers, medical equipment and imported gases. COL was the first to introduce dry ice to the Sri Lankan market. The product has become an instant hit, and it is widely used to transport tuna to Maldives and pack aeroplane meals.

Norsk Hydro acquired 60 per cent of COL in 1990 for Rs. 60 mn. Since then, Norsk Hdyro's investment in COL has topped Rs. 680 mn. The amount includes the investment in the Air Separation Plant. Most of the previous investment was utilized to acquire new cylinder stocks, liquid storage thanks, and pipeline systems for customer installations.

In 1992, the company began diversifying is product range and installed a carbon dioxide plant. The demand from the beverage industry (Pepsi), food preservations, welding, fire fighting led the company to install a second plant.


Vikram enters the 3-Wheeler market

S.S. Motorways (Pvt) Ltd., recently introduced the Vikram range of 3-Wheelers to the Sri Lankan market.

Vikram 3-Wheelers which are manufactured by Scooters India Ltd., an Indian government undertaking, comes in a range of models including diesel taxi saloons, diesel delivery vans and petrol ambulances and are fitted with eight seats unlike the three-seaters presently available in the market.

Besides, unlike conventional 3-wheelers, the Vikram is driven and controlled by a steering wheel and is capable of an extremely low turning radius of 7 metres thus allowing for greater manoeuvrability.

Other salient features are steel-welded construction, windscreen wiper and an instrument panel including speedometer.

The diesel taxi saloons are said to be capable of speeds upto 53 km per hour while diesel consumption is only 33 km per litre.

The diesel delivery van is said to be capable of a carrying capacity of 1040 kg. The petrol ambulance model which is used by the Indian Red Cross comes with a stretcher and oxygen cylinder.

According to the Managing Director, S.S. Motorways, Samson De Silva, the Vikram ambulance is ideally suited for use in the outskirts and rural areas.

He noted that S.S. Motorways is mainly targeting the self-employment market and expects to sell about 300 units a year.

Mr. de Silva observed that his company has made arrangements to assemble the Vikram range in Sri Lanka under a collaborative agreement with the manufacturers.

He explained that while the chassis will be imported from India, the bodies will be assembled locally at Katuwana Industrial Estate using local raw materials wherever possible.

He noted that the project which is expected to begin in about six months' time will also generate considerable employment.


ETV brings business to your bedroom

A series of new business programmes is to be launched on ETV in the coming weeks.

The programmes come from CNBC Asia Business News, a channel backed by the US network NBC and Dow Jones, an ETV communiqué said.

Other than prevalent and breaking business news programmes, ETV has Manager's Club, an on air business school that will bring the latest tools in running businesses. Local viewers can learn the techniques ranging from Enterprise Resource Planning (ERP) to Business Process Re-engineering (BPR), the release says.

Managing Asia, an on air CEO forum, talks to business leaders who are behind some of the fastest growing companies in the Asian continent. While heads of US companies like Microsoft or Sun may be well known, little is known about Asian business leaders. Managing Asia provides a forum to air their views and perspectives.

A daily business news programme would also be aired. These include Breakfast Briefing (Mon. – Fri.), which covers the latest world and business headlines. Live interviews with experts who discuss overnight developments and their immediate consequences would also be aired, the release states.Over Asia (Sun. – Mon.) a weekly feature programme will present the latest trends in business and finance, including Asia's top stories and personal investment tips, travel and high technology.

Storyboard (Sat – Sun.) highlights the latest trends in media, advertising and marketing as well stories and personalities behind Asia's media scene.

In Asian Wall Street Journal and Far Eastern Economic Review on air (Daily) the staff of the two publications discuss trade and political issues that are shaping Asia with CNBC Asia Business News.

CNBC and Asia Business News (ABN) tied up in December 1997 as part of an alliance that brought together the global television and internet services of NBC and Dow Jones.

Asian Wall Street Journal and Far Eastern Economic Review are also published by Dow Jones.


Goods and Services Tax: clearing doubts

  • Questions:

(1) If a person accounts on cash basis the rule is he should pay GST when he receives payments for his supply. Is this payment a full payment or part payment? If he receives a cash advance does he need to pay GST?

(2) Certain matters included in GST guide are not included in the Act or Amendment bill.

Has the department made any rulings on such matters? Is such a list of rulings available to buy?

(3) I heard the department is going to issue GST accounting regulations as a gazette notification. When will this be out and is it mandatory?

Are those regulations more or less similar to what is already contained in GST guide under accounts?

Kumara de Mel, 28/5, Sagara Lane, Uyana, Moratuwa.

Answers

(1) Generally GST should be accounted on an Invoice basis.

If you want to account on payment basis (cash is not the correct word) you have to get written approval from the Inland Revenue Commissioner- General.

Each time you receive payment whether partial or full you have to account for GST under payment basis. (Please refer section 23 of the Act too)

(2) Yes. Provided the particular advance is,

(A) set off against the consideration and

(B) it is a non-refundable advance

GST is not payable on refundable advances. eg: bottle deposits.

The difference is due to the fact that the GST Guide includes the amendments contained in the GST Amendment Act No. 11 of 1998.

This Amendment Act is still being printed at the Government Press and it will be made available soon.

There is no specific list of Rulings. The Inland Revenue simply goes by the law.

Whenever there is a problem where a clarification needs to be made you can bring it to the notice of the Deputy Commissioner GST and get a ruling on that particular issue.

(3) (i) . These regulations are also being printed at the Government Press and the GST branch says that they will be made available very soon.

Yes. The accounting regulations are mandatory.

(ii). Yes. They are similar to what is stated in the GST guide. (Section 74 of the GST Act No. 34 of 1996 deals with the regulations)

  • Questions:

(1) If a car is given to an employee by his employer and the employer uses PAYE valuations to calculate GST payable is this GST paid by employer allowable for income tax?

(2) If a manufacturing company (e.g., garments) makes a donation of garments to a voluntary organization, does the company have to pay output tax on such donation? Is such output tax allowable for income tax?

(3) If an individual imports a car or a computer for his personal use, can he recover GST paid at Customs?

(4) Is raw material imported by a factory in Free Trade Zone such as raw material to be used in production) liable for import GST? According to the guide issued by department (page 8) GST is not due on the importation to a FTZ for storage and/or processing. However it again says import GST is due on goods used or consumed. Please clear the position.

(5) De minimus input rule included in page 16 of the guide and correcting errors in GST returns included in page 36 of the guide are not to be found in the Act. Are those rulings made by the department?

S. Dharmaratna, 140/47, "Kalapura", Templers Rd, Mt. Lavinia.

Answers

No 1

This benefit is totally exempt from GST.

The following benefits are excluded from Employee Fringe Benefits.

I. Free use of a motor car on which no input tax credit for GST has been allowed.

II. Travelling in a motor coach provided by the employer.

III. Residential accommodation provided by the employer.

IV. Health care services provided by the employer.

V. Fringe benefits provided by any person who is not registered.

So this question does not arise.

No 2

I. Because donations are exempt so he cannot claim input credit on it.

II. Since it is exempt this question does not arise.

No 3

I. First of all, only persons registered for GST can claim input credit.

Anyway, you cannot usually reclaim GST you have been charged,

A. On a car, including filted accessories, delivery charges, maintenance and running expenses,

B. On independent trading by way of wholesale or retail activity unless you opt to pay GST on the supplies you make.

II. Even if you are a GST registered person, if the computer is for your personal use you cannot claim input credit.

But if it is to be used in your normal business activities you can claim it (provided you are registered for GST.)

No 4

No. GST is not due on the importation to a free zone of goods for storage and/or processing. (this included raw materials)

But import GST is due on any goods removed from a free zone into the rest of Sri Lanka and on goods used or consumed in a free zone.

Eg.Toilet paper imported by a Company in the FTZ for the use of its employees are liable for GST.

No 5

1. De Minimus rule is not recognised in our law at the moment.

But the Department might consider incorporating it into the Act if the need arises says the Inland Revenue.

II. Section 28 (I) (C) states very clearly that "where any person requests the Commissioner-General in writing to make any alteration or addition to any return,furnished by such person for any taxable period, the Assessor shall assess the amount of the tax, which such person, in the judgement of the Assessor, ought to have paid for that taxable period and shall, by notice in writing, require that person to pay such amount forthwith."

Any other errors not falling into the category of alteration or addition too can be brought to the notice of the Commissioner- General and you can get a ruling on the matter.

  • Questions:

In a valuable article published by O. M. Weerasooriya, Commissioner- General Inland Revenue, in a newspaper of March 27, states that:

1. It must be noted that the GST is not a new tax. It will replace the turnover tax paid to the Central Government...

2. "The threshold of turnover tax is Rs. 25,000 per quarter... but in the case of GST the person or businesses is liable to GST only if the turnover for a quarter exceeds Rs. 500,000...

Please clarify the following:

1. Will there be a Turnover Tax (BTT) to be paid to the Provincial Governments?

2. What is the position of businesses or person whose turnover exceeds Rs. 500,000, but not registered with GST.

3. What is the Tax for businesses or person whose turnover is between 25,000 and 500,000/= (who is liable for BTT as per old taxation system, but not GST.) Are they liable to Turnover Tax.? If so what is the percentage?

M.S.M. Thahir, Matale.

Answers

1. Yes. The Turnover Tax (TT) or the sales tax as some call it, presently at 1% payable to the Provincial Councils on commercial activities of buying and selling (both wholesale and retail) will continue.

Because it is a different tax by/to a different Authority not by/to the Central Government.

2. If someone's turnover exceeds Rs. 500,000 a quarter, then he is liable to a fine once the Department detects him according to section 68 (a). Section 68 (a) says,

"Every person who fails to apply for registration as required under section 10....

Shall be guilty of an offence under this Act, and shall be liable on conviction after summary trial before a magistrate, to a fine not exceeding Rs. 10,000 or to imprisonment of either description for a term not exceeding six months or to both such fine and imprisonment.

3. Only a person whose business turnover exceeds Rs. 500,000 is liable to pay GST.

So if somebody's turnover is below the specified Rs. 500,000/= threshold he is not liable to pay GST.

But he has to continue paying his 1% Turnover tax to the Provincial Council concerned.

Prepared by Priyantha Gamage

We sincerely thank the Commissioner General of Inland Revenue O. M. Weerasooriya, Commissioner - GST Branch, S. Ponnambalam and Senior Assessor, Nissanka Perera for the assistance given to us in answering the GST queries.

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