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3rd October 1999

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Governments ignore appeal for ESOP tax breaks

ESOPs after basic salary, is the number one motivator or incentive in the developed world, but has so far received no state patronage here to popularise, a top CEO and industry official said last week. "ESOPs are every year included in our proposals for tax reduction but nothing has happened so far, said Mr. Chandra Jayaratne, Tax Committee member, Chamber of Commerce at a seminar on ESOP ( Employees Shares Ownership/Option plan) last week. Mr. Jayaratne also, MD Eagle Insurance Co Ltd. and Central Finance Ltd. told the Sunday Times Business that no company would want to set aside capital for an ESOP without a substantial tax concession. But successive governments have not recognised the importance of it, he added. The paragraph on the Chamber's Tax Committee's 1998 pre-budget annual proposals to the Finance Ministry say, "Provide for tax deductibility for contributions to ESOPs by employer companies and for taxation of investment income akin to approved superannuation funds." The 1999 proposals include a similar request but the recommendations cannot be released to the public before the budget, a tax committee chamber official told The Sunday Times Business. Fielding questions on why successive governments have not taken up their recommendations, Mr. Jayaratne said that ESOP tax concessions did not appear to be marketable election propaganda and therefore was ignored. He also said that perhaps the culture was not yet right for ESOPs to really take off here. The Companies Act (Section 55) prohibits funding share pruchases in your own company or the holding company. But Section 55 specifically permits financial assistance by a company to the trustees to buy its shares. ESOPs are implemented in three ways, one of which is the formation of a trust. The company grants shares to the trust and the beneficiaries are the employees.

A direct grant by the company to its employers including options is another ESOP procedure and the third is a grant of shares by the company to a separate company in which the employees would be share holders/main creditors.

By establishing a trust, companies are able to legally pump money into a separate fund for ESOPs. But as Mr. Jayaratne pointed out, an attractive tax concession would be an added attraction for more companies to form a trust. Sri Lanka has seen a few ESOPs in recent years, but not more than 10% of listed companies have formed ESOP according to a survey.

Humans Relations and ESOP specialists who spoke at the seminar said ESOPs were for the stars. They said that not more than 5% of the employees should be entitled to ESOPs, but the option or the ownership should cut across the boards.

Principles of electronic commerce

US Commerce Secretary William Daley says freedom from taxation, protection of consumers and helping developing countries achieve economic expansion via the Internet should be guiding principles for electronic commerce.

"America's policy is very clear: we want a duty-free cyberspace," Daley said in a speech to the Global Business Dialogue on e-commerce (GBDe) in Paris on September 13. "E-commerce should become an engine of growth not just for America, but for the entire world."

Daley said the United States will urge the World Trade Organization (WTO) to extend its current moratorium on Internet tariffs and seek a permanent ban on them at the WTO ministerial meeting from November 30 to December 3 in Seattle.

"I urge our friends in Europe, in Japan and everywhere around the world to make a decision and stand tall with us in Seattle," Daley said.

Daley said high standards of ethical conduct by businesses should be the main method of fostering consumer confidence in the Internet.

The United States and the European Union have reached agreement on the kinds of data that need to be protected in e-commerce transactions, but "have ways to go" in negotiations on how to implement data protection, Daley said.

I am delighted to be here today. These meetings I truly believe mark the coming of age of this industry.

They are a kind of a celebration of the life of a young industry - a child prodigy - that grew up faster than any in history. So I feel like I am at the first meeting of the international chamber of e-commerce.

When President Clinton and Vice President Gore began drafting their let-industry-lead policy for the Internet back in 1996 - which was the first of its kind by any country - few people could have imagined how rapidly e-commerce would grow.

Since then, the percentage of retailers with websites has more than tripled to 40 percent of the industry.

Two years ago, e-commerce was hardly a decimal point in world economic statistics. But a few years from now it will be a trillion dollar business.

When I first became commerce secretary two-and-a-half years ago, I would occasionally read something about e-commerce in the business pages. Today, it is the talk of the business world, and frequently gets front-page play in the A-section.

And we're not just talking about new businesses, the Amazon.coms of the world. We're talking about a revolution in all business models. Change and become an e-business, or die - that is the new reality.

We did a study at the Commerce Department that shows Information Technologies (IT) account for a third of US economic growth.

Alan Greenspan notes that IT has begun to fundamentally alter not only the way business is done, but how economic value is created. As a result, American workers, he says, are more productive and enjoy a higher standard of living. At the Commerce Department, we now look at computer software as an investment, instead of treating it as a corporate expense.

All this means that if we can bring the world a little closer together by linking it to the Internet, we can spread the economic benefits that it can create around to people in other nations.

Just as e-commerce challenges traditional business practices, so too does it challenge traditional ways of governing. The e-commerce paradigm demanded that we in government take a new policy approach: let the private sector lead. And government will provide the legal framework so e-commerce can grow.

This is reflected in President Clinton's and Vice President Gore's Internet framework. We may not have known how fast e-commerce would grow, but we knew that the best way for it to flourish was to let business lead.

Obviously, that is why this gathering is so important to us. You have done well by issuing broad statements on many of the major issues that must be dealt with. But I view this as a good beginning, not the end, not by a long shot. I hope you will follow up with very specific and concrete work.

Frankly, you also must include other constituencies. What about consumer groups, privacy advocates, and law enforcement officials? They need to sit at the table, also.

My point is, if you want government out of the picture and self-regulation to work, you must hear all the voices. The fact of the matter is, if you don't hear them, or ignore their legitimate interests, I guarantee they will be knocking on my door, calling for regulation.

Privacy is a case in point. It is among the biggest issues we face, and I am proud that our industry came up with self-regulatory standards that provide real protection for people's privacy. This is very significant so consumers will have confidence when shopping on the Internet.

We asked our businesses to step up to the plate, and they are responding. A number of new groups are forming - like the OnLine Privacy Alliance, TRUSTe, and BBB OnLine.

They have signed up many companies or associations. They have adopted strong privacy protection principles, and are committed to enforcing them through independent audits and consumer recourse.

We're seeing real leadership by individual companies, such as IBM which won't advertise on any website that doesn't post a clear privacy policy statement. Others have taken steps, including Microsoft, Intel, and Disney.

But it's not enough for 10 or 20 or 50 of the largest companies to sign up. I am working to broaden the base so that every company - from a one-person,, to a Fortune 500 - is on board.

And we need to globalize the system. I hope one day soon we see websites all over the world offer buyers and sellers strong privacy protection.

One more thought. As you find solutions that work globally, I don't believe they have to be global solutions. What I mean is we have to recognize there are differences in legal traditions and cultural patterns between America, Europe and Japan.

When we come up with consumer protections, they don't have to be exactly the same. But they must work in every single jurisdiction in the world.

As you know, we have virtually 100 percent agreement with the Europeans on privacy protection issues. To be honest, it took a whole lot longer than I would have liked. But we've reconciled our differences.

And now, the question is: how do we implement and enforce our agreement? We have a ways to go. And I want to be sure American companies won't be put at a disadvantage, versus their European competitors.

On this, I think the GBDe is on the right track by calling for transparent practices. But I think industry needs to commit to enforcing privacy protections based on fair information practice principles and with means for consumer redress.

If we do all this successfully, it can be used as a model for self-regulation in other markets around the world.

There are two other key areas where we need to see progress, also. First, is consumer protection, and second, is taxes and tariffs.

Consumer protection involves many elements. Consumer recourse: How do I get my money back if my order is wrong or damaged? Liability: Who is responsible when something does go wrong? Where does a consumer go? Security:

Is my credit card number and other personal data protected when I place an order over the Internet? Authentication: How do we make electronic signatures carry the same legal effect as handwritten ones?

All this boils down to consumer confidence. If e-businesses cannot come up with the right answers, I am confident that consumers will shop at the mall and not on the Net. And that, would be a sorry day.

Industry needs to develop effective consumer protection practices, and set a floor, or minimum standards.

In the end, a quality seal could be pasted on websites that are safe for consumers to use. Something equivalent to the good-housekeeping seal of approval we have back in America.

I was very happy to see, just a few weeks ago, a number of US companies - many represented here today - formed the E-Commerce and Consumer Protection Group. It will work to create a predictable and stable legal framework for doing business on the Internet. Their focus is global, so I hope more international companies join.

And I urge everyone here to look beyond legal or policy solutions. Use your high-tech abilities to come up with solutions, such as instant confirmation of purchases on the Net.

Finally, let me turn to tariffs. On this America's policy is very clear: we want a duty-free cyberspace.

I can report today that at the WTO meetings in Seattle this fall, we will seek an extension of the current moratorium on tariffs. And we will seek a permanent ban at the earliest possible date.

I hope we're not alone on this. I don't know where Europe stands. But I can't seriously believe that they wouldn't support us, unless they have tactical reasons not to. So, I urge our friends here in Europe, in Japan, and everywhere around the world to make a decision, and stand tall with us in Seattle.

I know I have only touched a few of the key issues. There are many more that must be resolved. Tomorrow, for example, I will be in Geneva to formally ratify American participation under the new World Intellectual Property Organization copyright treaty. This is a major step in protection of intellectual property rights on the Net. And this is a positive contribution by government.

Let me end on this. Today as we celebrate this new industry, and all its hope and promise, let us not forget there is a digital divide. In America, we are working to narrow that gap between those who have access to technology, and those who don't.

But this is not just a domestic problem within countries. There is a digital divide among nations, also. So I hope as we move forward, that business and government work together to close the gap among nations so e-commerce can realize its fullest potential.

Renewed optimism in plantations

The week's trading belonged to the plantation sector. Renewed optimism in this volatile sector did not go hand in hand with high auction prices. Auction prices were lower than anticipated.Turnover was relatively high during the first three days of trading but retreated during the latter part of the week. Average turnover was Rs 86.09 mn. The All Share Price Index rose 0.23 per cent to close at 568.6 while the Milanka Price Index fell 0.41 per cent to register 923.1. Foreigners remained net sellers to the tune of Rs 138.5 mn.

Udapussellawa Plantations gained 36.96 per cent. Sathosa Motors rose 36.08 per cent following an announcement of a 1:1 bonus issue and a 30 per cent dividend. Kotagala Plantations increased 33.33 per cent. Losers included Korea Ceylon Footwear 16.67 per cent, Ceylinco Securities and Financial Services 10 per cent and Pelwatte Sugar 8.33 per cent.

"The market will be flat next week," Head of Research, NDBS Stock Brokers, Chanaka Wickramasuriya predicted. "There will be profit taking in the plantation sector," he added.

"Plantation stocks have risen so much, we can expect some profit taking," Head of Research, Jardine Flemming HNB Securities, Panduka Abanpola said. "Sentiment will not be weak because of the fund managers' conference where fund managers will be forced to look at Colombo's market exclusively," he said.

"The market will remain at present levels with no significant foreign buying in the week ahead," Head of Research, Asia Securities, Dushyanth Wijaysingha said. "The first two days next week will be quiet because of the institutional Fund Managers conference organised by the Colombo Stock Exchange," Director Research, John Keells Stock Brokers, Nandakumar Nair said. " The market should be stronger next week with greater confidence in the plantation sector compared to the end of last week," Head of Research, Forbes ABN Amro Stock Brokers, Shehan Perera said. "There will be buying interest in selected stocks," he added.

Sri Lanka joins the club

For the first time this year cumulative production dropped below last year's levels. Cumulative production dropped 0.56 percent to 184 million from 185 million crop of last year. Sri Lanka was the only country with a surplus but now has joined Kenya and India taking the shortfall of world tea production to new heights. The drop was fuelled by a 4.57 million kilo drop in low growns. High and mid growns remained ahead of last year's production. Brokers forecast around a 20 million kilo crop for September lower than the 23.38 million kilos recorded in 1998. Forbes & Walkers Tea Brokers added that with the present favourable weather conditions production would pick up by mid October and thereafter.

Brokers added that producers should pay more attention to the overall product in order to ensure that a good standard was maintained as the prices for poorer teas are expected to fall in the latter part of October and continue into 2000.

Tea exports on the other hand recorded an increase of 1.38 million kilos over the same period last year. Export earnings however were around 0.2 million kilos lower over the same period last year. This has increased the deficit for Jan/July to Rs. 6 billion from Rs. 34.4 billion for the period in 1998 to Rs. 28.3 billion in 1999. This was mainly due to the increase in bulk tea exports.

In auctions last week prices continued to gain on their previous prices, but not up to expectations. Average prices however will not gain much over last week's prices, brokers said.

In addition, Asia Siyaka Commodities said that there were reports of Iran easing up on import restrictions, probably in reaction to poor crop harvested. They said this may slow transaction in the short term whilst the new direct orders are processed.

SEC cautions Trans Asia

Trans Asia hotel has been cautioned by the Securities and Exchange Commission (SEC) for making ambiguous and unclear announcements under the Corporate Disclosure Policy of the Colombo Stock Exchange, the SEC said.

Trans Asia made an announcement to the Colombo Stock Exchange on June 24 1999, denying a newspaper report that three key employees had been suspended.

Trans Asia's Finance and Administration Manager, Human Resources Manager and Additional Secretary to the Finance Manager were suspended pending an internal audit being carried out by the hotel.

The management in an interview with The Sunday Times Business said they were suspended for not accepting a remuneration package which was introduced.

The suspension was subsequently lifted. However the SEC had in its possession documents, which confirmed the three employees had been suspended.

In view of the contradiction with Trans Asia's statement to the CSE, the SEC sought an explanation from the hotel. Trans Asia explained that the suspension of three key employees was not price sensitive information.

The SEC found the explanation offered by Trans Asia unacceptable and therefore cautioned the company.

Communication bureaus under TRC scrutiny

Communication bureaus will be soon brought under the telecom watchdog's scrutiny. Communication bureaus are considered to be re-sellers of telecom services, who previously had no status with the telecom law. But a new amendment to the Telecommunication Regulatory Commission (TRC) law in 1996 (section 18a) makes it an offence to re-sell telecommunication services without TRC's permission, TRC Director Legal, Mrs. P R Amarasiri said.

The new rules makes it mandatory for around 20,000 bureaus scattered islandwide to get a certificate of registration from the fixed operator.

The TRC will issue permits to the three fixed operators who will in turn issue a certificate of registration to the re-sellers (bureaus) together with the code of practice.

The certificates will be in all three languages. Different colours will be used to identify which operator the bureau is registered with.

The permits will specify the terms and conditions to be followed by the operators. Operators are liable to a Rs. 10,000 fine on conviction if any of the conditions are breached, Amarasiri said.

The code requires bureaus to display their service charges prominantly within the premises.

As it is important to bring this activity within the ambit of TRC Act the first phase of the project will register the re-sellers with the respective operators, for which a six month period has been given.

Bureaus will also have to make known if they are registered with other fixed operators.

The TRC will engage a flying squad to crack down on errant bureaus. The onus will be on the operator to ensure the code of practice is adhered to, Amarasiri said. The TRC hopes to renew the certificates on an annual basis for a nominal fee. Communication bureaus are scattered islandwide serve the rural and urban masses who have no access to telephones of their own. Most patronise them to contact their families overseas. Their services range from providing telephone calls to sending faxes, telexes and e-mails. Some bureaus double up by offering photocopy services and selling stationary items. The bureaus have been found to be the worst defualters of telecom bills. Communication bureaus purchase telephone lines and sell the service to customers on cash basis. As the capital outlay is minimal, this business is seen as an easy way of making money.

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