13th February 2000

Front Page|
Editorial/Opinion| Plus| Business|
Sports| Sports Plus| Mirror Magazine

The Sunday Times on the Web



Contents Index Page
Front Page
Sports Plus
Mirrror Magazine

Tomorrow's budget

Low stamp duties, wider GST net expected

By Dinali Goonewardene

A valentine's day budget is finally being presented in parliament tomorrow and speculation is rife on what it will hold. Analysts expect the GST net to widen and the debt market wants an exemption from stamp duty and debt instruments. The banking sector has its own agenda which it hopes the government will consider.

The budget will widen the Goods and Services (GST) net which is one of the key IMF recommendations to increase revenue, Head of Research, C T Smith's Stock Brokers, Rajiv Cassie Chitty predicted. An attempt may be made to try and bring down capital expenditure but since it is an election year there will be no drastic cut in current outlays such as salaries and pensions, Head of Research, NDBS Stock Brokers, Chanaka Wickramasuriya said.

Financial sector debt instruments which are subject to tax should be exempt, debt market specialist and Head of Treasury, Standard Chartered Bank, Mangala Boyagoda said. He said capital gains for corporate debt should be tax exempt and was hopeful that tax incentives would be provided for securitisation.

Debt market participants were keen that stamp duties on pro- notes, commercial paper and debentures be eliminated. Stamp duties are payable for each transaction involving debentures and companies circumvent the tax by issuing long term pro- notes. Upon liquidation pro- notes are redeemed after debentures and are a riskier product, which the stamp duty encourages.

More infrastructure projects would be welcome as they would generate ancillary activity and vibrant economic activity would result, Managing Director, Hatton National Bank, Rienzie Wijetilleke said. He said infrastructure projects such as roads which connect the principal towns to Colombo in the shortest possible time are necessary to vibrate the economy in those regions.

Banks are also hopeful that heavy stamp duties on property mortgages would be reduced to a reasonable amount. Customers are averse to signing property mortgages because of high stamp duties and it leaves the banks exposed, Wijetilleke said.

Research analysts said the equity market would improve if there is greater implementation of economic policy. The tourism sector should be exempt from GST for it to survive, they said. GST is scheduled to be levied on the industry from April 2000.

The equity market would improve if the budget deficit is reduced, head of Research, NDBS Stock brokers, Chanaka Wickramasuriya said. The government should bring in more captive funds to the equity market, he added.

Three more for SriLankan Airlines fleet

SriLankan Airlines will purchase three more aircraft and increase its fleet to 15 by mid next year, a top company official said.

The airline which had earlier purchased six A330-200's, had an option for a further four aircraft. The company had decided to use the option to purchase three more.

"We have the option of converting the three remaining aircraft into twin engine version A330's or maybe some additional A340's," Senior Manager, Sri Lanka and Maldives, Chandana de Silva said.

The entire re-fleeting programme for nine aircraft funded through a finance lease is expected to cost SriLankan Airlines US$ 1.1 bn.

A consortium of European banks backed by the European Credit Agrico Indosuez will fund the leases.

The four recent airbuses were purchased on a financing package arranged by Credit Agrico Indosuez for a ten year period with a fixed interest rate of 6.68%.

Presently, SriLankan Airlines has 12 aircraft - four Airbus A340-300 four-engine wide bodies, two Airbus A320-200 narrow body aircraft and six A330-200's.

Airline officials also say the financing is expected to be an off balance sheet finance lease agreement with both assets and liabilities not being reflected in the airline's accounts.

Recently, SriLankan Airlines disposed its ageing Tristars to a Canadian charter company. Though the company declined to disclose the sale price, airline industry sources said the deal would run to several million dollars.

De Silva says the new destinations lined up include Dhaka (by July/August) and Milan via Rome.

The airline is looking at enhancing tourism between India and Sri Lanka. "There is enormous potential for both of us.

We want to see Indian Airlines coming into Sri Lanka in a big way." SriLankan Airlines is also trying to lure carriers like Jet Airways to fly to Colombo.

De Silva says that though Jet Airways is a domestic carrier, 'their onboard service is like any other international carrier'.

"More Indian flights are needed because we cannot cope with the demand for flights to Chennai. Now we are catering mostly to tourist, pilgrims and passengers on medical visits. Once the free trade agreement gets going, we are expecting a lot of Indians to travel here," he said.

SriLankan Airlines is in the process of consolidating their activities by concentrating on routes to standardise and upgrade their services.

SriLankan Airlines plans to establish a new flight kitchen with a capacity of 15,000 meals per day. The investment is expected to cost around US$ 10 mn and the kitchen is expected to be completed by 2001.

Last year, SriLankan Airlines was rocked by an industry dispute which left the airline virtually crippled for days. De Silva says, the dispute has hurt their balance sheet and its actual costs are being worked out at the moment.

"But on the commercial side, the losses run into billions by way of people's perception of the airline etc."

However, he is optimistic that once the airline is standardised, they will be able to influence higher spending tourists to visit Sri Lanka.

Emirates Airlines bought 40% equity and a management stake in AirLanka in 1998 for US$ 70 mn. Emirates paid US$ 45 mn down payment and the balance is due by December 31, 2000.

However, Emirates does not charge a management fee. SriLankan airlines is aiming for an annual 10% - 15% revenue growth under a 10-year business plan.

Malwatte IPO in March

Twenty percent of Malwatte Valley Plantations Limited (MVPL) will be up for grabs in the course of next month.

The Public Enterprises Reform Committee (PERC) said that four million shares in the long overdue MVPL IPO would be listed in the Colombo Stock Exchange (CSE) after its public issue early next month.

PERC Director General, Mano Thittawella, told the Sunday Times Business that the issue would be at par (Rs. 10) or at a premium of Rs. 5.

We understand that Vanik Incorporation Limited is the manager to the issue while Magpeck Colombo Land Plantation Management Company is to be the underwriters to the issue.

Officials said that PERC also planned to offer four million shares of Elpitiya, Maturata and Pussellawa Plantations subsequently.

Analysts said that Malwatte would be a good investment and the fact that the plantation is making profits made things even better.

Malwatte, with its mixture of estates saw a turnaround in profits since 1996 when it reported a net profit of Rs. 325 million for a 15-month period ending on March 1998.

Officials said that although tea prices have come down since then, the plantation has managed to stay profitable.

The company posted a net profit of Rs. 47 million for a 18 month period ending September 1999.

In addition, they said that the expected recovery in tea prices in 2000, would ensure a sell out of the IPO.

Tea industry officials also said that Maturata had potential as it produced a large portion of the highly acclaimed and seasonal Uva teas that generally fetched a higher price.

The plantation managed by the majority stakeholder (51 percent of issued share capital) Wayamba Plantations Limited, among the few left from the government's privatisation programme for the plantations sector.

It was managed by Magpeck Exports until Wayamba Plantations (WAPL) acquired it in 1997.

At a glance


Estates 27
Tea 11,891.17ha
Rubber 2,645.32ha


Estates 16
Tea 3,258ha
Rubber 2,680ha


Estates 19
Tea 5,183ha
Rubber 453ha


Estates 25
Tea 2,800ha
Rubber 5,400ha

Port charges up by 900 percent

The Sri Lanka Ports Authorities (SLPA's) decision to raise port annual entry permit fees by 900 percent from March 1, 2000 has raised howls of protest from container transport agents.

The Association of Container Transporters (ACT) says that SLPA increased charges arbitrarily without prior discussions with the various shipping associations.

Among the increases, a permit for heavy vehicles, which is Rs. 300 per annum at present, is being increased to Rs. 3,000 plus GST. A prime mover trailer combination for container transporters will be hit with an increase of Rs. 6,150 per annum against Rs. 600 as it is, at present.

This sudden hike would increase all transport charges effecting import and export trade.

While exporters will become less competitive in the world market, imports for re-export will lose their competitiveness, ACT officials said.

"It is going to hit the shipping industry as the number of container units for imports and exports will reduce," Organising Secretary ACT, Sunil Fernando said.

"At present we have noted that the port has lost a substantial share of business to other ports in the region due to various factors ranging from pricing to customer satisfaction. This move would eventually result in losing the vital position the Colombo Port had as the hub for trans-shipment," he said.

Last week's diesel hike by 23 percent and the port entry charge hike will have a substantial direct and indirect impact on our trade, Fernando said.

He said that the benefits of increasing rates will be diverted elsewhere and not to the port user. The port has never concentrated on providing basic facilities for port users who are their main customers.

New optimism on Indo-Sri Lanka free trade

A new wave of optimism on the pros- pects of the Indo Sri Lanka Free Trade Agreement appears to be gripping the business community.

Four Chambers of Commerce Chairmen expressed this optimism in an article published in our sister paper, Daily Mirror on Independence Day.

To quote one of them, Mr. Lal de Mel, President of the Federation of Chambers of Commerce and Industry of Sri Lanka {FCCISL}: "We look forward to a significant growth in trade between the two countries and also a substantial rise in exports of India and Sri Lanka to other countries. "

There have been several concerns regarding the trade agreement in the past.

Some leading businessmen have expressed their concern in no uncertain terms, even saying that the negative lists made it an agreement where only India gains as all the items which Sri Lanka could export to India have been disallowed.

Since then it appears that there have been fresh negotiations and the negative lists have been revised.

At the time of writing, we are not aware of what the revised negative lists are to be. Responsible officials have indicated that there are favourable terms in the new agreement.

A lot certainly depends on this. Special concern has been with respect to trade in agricultural commodities.

It is a well known fact that most food items are cheaper in India. The fear is that if there is free trade in food imports , our food crop cultivation would not survive. Cheaper food imports would drive out local products.

If this were to happen then it would not be a mere economic problem, but a social disaster.

Many reasons are adduced for the cheaper cost of production of food crops in India. It is said that the Indian farmer enjoys many subsidies.

This , some knowledgeable persons tell us is an exaggeration. The seed varieties are far superior than those available to our farmers. In fact we are told that many of our more enterprising farmers smuggle seed from India.

Labour costs are much lower, especially due to the lower cost of living. For these and many other reasons, vegetables and other crops are produced more cheaply in India. So competing with Indian imports of food items appear to be impossible in the short run.

Therefore the question is are the terms of the agreement likely to protect our farmers?. If the answer is yes for sometime, then how long?. This leads us to another question, what are we then going to do for our agriculture in the long run .

It is in the nature of a free trade agreement that after a period of time there would be no barriers to trade in the form of customs duties or tariffs, quotas or other non tariff barriers. Free traders would take the view that our farmers would themselves adjust to the changing market conditions by either becoming more efficient or shifting to the cultivation of crops for which they have a comparative advantage.

This is good theory, but the practice is far more difficult for small peasant cultivators of pigmy sized holdings just managing to eke out a living in a country where basic living costs are very high. They require support in the form of advice and extension services, good seed varieties and good marketing facilities that ensure a proper price at farm gate level. We must enter this agreement with a resolve that the government would strengthen our agricultural infrastructure to be competitive as well as to enable changing cropping patterns.

The concern on the industrial side is different. Our industrial structure is based on considerable dependence on imported raw materials. This has been and will be a feature of our industrialisation owing to our limited raw material base. For instance even in the case of tyre manufacturing where we have natural rubber, there is a considerable amount of other imported inputs like canvas, chemicals, wire etc. In the case of many other industries the imported inputs are even more.

Therefore, it is vitally important for Sri Lankan industries that the agreement does not preclude Sri Lankan manufactured exports on the grounds that there is a large import content. There is no doubt that the free trade agreement could provide us with new opportunities for trade and development.

Yet it all depends on the actual terms and conditions of the agreement and the spirit in which it is implemented by the two sides. Our Minister of Foreign Trade once said that the biggest non tariff barrier to Indo Sri Lankan trade was the Indian bureaucracy.

We hope this will not be so in the implementation of the agreement. We also hope that the long term gains would be kept in mind , while at the same time, the short term concerns will also be looked into. A tempered optimism is appropriate on the eve of this historic economic event.

The valise opens tomorrow

By Dilrukshi Handunnetti.

There's a breathless hush of sheer anticipation as it makes its 'grand annual appearance'. And no other valise commands such awed respect as the budget box!

It's anticipation time again with the fifth budget of the PA government being presented tomorrow St. Valentine's Day. The budget was postponed from November to accommodate a hurried presidential poll. Naturally, matters financial took a backseat only to be replaced by political interest.

Tom. L. Johnson a toastmaster has remarked that "when you see a situation you cannot comprehend, look for the financial interests." So it is that time of the year to put the finance caps on while treasury officials struggle to bridge a gaping deficit. Meanwhile, it is the consumer- the poor taxpayer- voter who is unnerved the most.

And how did this unenviable task (though heavily steeped in tradition) of budgetary making originate? And how has Sri Lanka emulated the British examples?

Sadly, few records are kept on the British budgetary making.

It is learned that the word 'Budge' a derivative of the French word 'bouge' meaning a 'small bag' was the first ever reference to a budget box or a leather valise containing the confidential documents.

The invaluable valise or box is carefully kept at the Exchequer and taken out just prior to the presentation, and decked with a ribbon to signify its importance.

In contrast, here the ribbons are often representative of the colours of the political party at the helm rather than denoting tradition!

The British have enjoyed taking pot shots at their political hierarchy -including the Exchequer.

They didn't spare Sir Robert Walpole, the Premier and Chancellor of the Exchequer way back in 1733- who was pamphleted in "The budget opened" as a quack doctor opening a bag full of medicines and charms!

The term 'Budget', since then has applied only to the annual exposition given by the Exchequer at the opening of each financial year (April 1st).

Later, it became known in England and elsewhere as a word denoting 'the entire annual plan of finance'. What is now known as the 'budget speech' or 'statement' was earlier known as the 'opening' of the budget of the 'Committee of Ways and Means'.

This like today, included a review of the public revenue and expenditure and sometimes of the economic state of the nation as well.

Historic Facts:

There are delightful facts about budgetary making. Soon after the presentation in the Committee of Ways and Means by the Chancellor of the Exchequer at the commencement of each financial year he also gives an account of the previous year's finances and proposals for taxation in the forthcoming year.

The 'Finance Bill', as it is referred to thereafter, contains solid resolutions through which revenue raising modes are proposed. These resolutions are referred to as 'proposals' in Sri Lankan legislative parlance- which form the basis of any budget.

The resolutions undergo changes during the 'process' to raise the estimated revenue and meet expenditure. The resolutions are commonly known as the 'Budget Secrets!'

The 'Budget Presentation' in England as well as here are formal occasions where the Chancellor of the Exchequer, or here the Deputy Finance Minister play gracious host to top rung personalities, including the Head of State!

The presentation is hence only a formality.

It is the general debate which follows a few days later which is significant with Opposition members relishing the annual opportunity to tear the government's economic policy to smithereens!

According to records, this period is a survival from the times when the Commons claimed to discuss "Grievances Before Supply"- a complete scheme of revenue debated as a whole. It is also the 'Second Reading' which is traditionally opened by a senior Opposition member and closed by the Exchequer himself, in our case, the Deputy Minister of Finance.


Giving legality to the Finance Bill was once a disputed subject in England, which paved the way for laying down clear procedures.

It was necessary that tax changes and renewals of expiring taxes be given the force of law on the same day they were proposed. For years, the English Treasury accepted the Ways and Means Committee resolutions as 'binding and sufficient authority' for continuing the existing taxation and making such changes as would be imposed, and made by the Finance Act when it was carried out

The overhauling took place when Gibson Bowles( 1912) challenged the procedure and it was declared that the deduction of income tax on the authority of a ways and means resolution was invalid!

The difficulty was settled by the enactment of Taxes Act (1913) by which a resolution came into and continued in force as soon as it had been vetoed by the committee; provided that-

1. It is agreed by the House within ten sitting days.

2. Bill confirming it is read a second time within twenty sitting days after the House agrees.

3. The Bill receives Royal Assent

( Here, endorsed by the President) within four months after the resolution has been voted in the House.

4. Resolution imposes no new tax.

At present, the Budget Speech and the Ways and Means resolutions are taken up in the House. After the second reading which is a general discussion, each 'Head' would be taken up for discussion-and a vote taken. In November 1998 a furor was created when Minister S. Thondaman's livestock and estate infrastructure vote was defeated-which had to be remedied by way of supplementary estimates subsequently.

The budget, thereafter is read a third and final time -which also concludes a financial year. It is then that the remarkable black box retires to a backseat to rest -until next year.


While Lloyd George holds the modern record(1909) for the longest budget speech (4 hours 51 minutes), British records claim that during the debate, the closure was moved 106 times while the divisions were taken 549 times- meaning 90 hours in the Division Lobbies!

Little wonder that the House of Lords threw this budget out by a mammoth 350-375 votes, though there has been no similar precedent. This caused heated debates during the general polls as to whether the Lords had the right to reject a budget which the Commons had passed.

Subsequently, the Parliamentary Act of 1911 destroyed the Lords' power to veto legislation, and curtailed their ambit to merely delaying measures of legislation passed by the Commons.

It is Mr. Gladstone who holds the record for the longest budget speech ever (1853) which lasted a little over five hours. The shortest was by Mr. Ward Hunt in 1868.

In Sri Lanka, it is former Finance minister Mr. Ronnie de Mel who delivered the longest speech-while the shortest was by Premier and Deputy Finance Minister D.B. Wijetunga -110 minutes!

An interesting departure from the general practice in the British Parliament is observed where the Chancellor is permitted to, at intervals regale himself with a liquid refreshment of his choice while presenting the Budget. And the British have proved quite experimentative in this area, with Goschen preferring port and Disraeli- brandy with water. Gladstone had favoured sherry with beaten eggs while Mr. Derrick Heathcoat Amory had opted for a sustaining concoction of milk, honey with rum!

Mr. Callaghan has preferred tonic water while Sir Strafford Cripps was simpler-and selected plain water! Despite all these, our finance ministers have remained sober by taking steaming glasses of hot water-not even tea or coffee.

And the rich traditions would come alive again-as the 'box' which makes the tax payer's heart skip a beat in dreaded anticipation will be opened like the Pandora's Box tomorrow including chaff and grain, as always.

Refs.: Encyclopedia of Parliament, The British Budgetary System, A parliamentary Dictionary.

Mind your Business

By Business Bug

The best of times, the worst of times

A company holding the local agencies for a popular car as well as a range of electronic goods is not experiencing the best of days, we hear.

Loans are aplenty and the company is in the red, hit by rising competition in the sectors the company trades in.

For the moment a bailout package to tide over the crisis is being arranged but in the long term, it will be an uphill battle for survival.

More regulations

The conversion of petrol vehicles to gas is to be regulated, we know. But now it seems this regulation will come at a price.

An annual tax- like the diesel levy- is being considered, though the amount payable may be less.

And strict laws against the use of domestic cylinders in vehicles will also be introduced- though whether they can be implemented is another issue.

Surprise, surprise

And still on the subject of fuel, the price hike on diesel took all and sundry by surprise as did the price hike on gas- coming as it did on the eve of the budget.

But those in the know say that the proposals were originally in the budget but someone advised that the budget must paint a rosy picture, this being election year.

Therefore, the harsh measures were announced early. So, get ready folks, for a sunshine budget this week!

Private provident fund laws in April

The long awaited legislation to permit private provident funds, is expected to be tabled in Parliament in April.

New private pension or provident funds are presently banned, pending the development of a new regulatory and supervisory framework.

The 1998 budget permitted quoted companies to set up their own provident funds. The private fund management companies rejoiced, and poured in monies to beef up their institutions, in anticipation of the lucrative business opportunities that lay ahead.

But the proposal was never legalised, and the fund managers have since being lobbying for the formalisation of the proposal.

Called the 'Insurance and Pension Funds Regulatory Control Act', the Act would include the setting up of a pensions regulator to monitor the private funds.

Public Enterprises Reform Commission (PERC) Director General, Mano Tittawella said, that the regulator was important as the unions and the workers felt that opening up the sector, would leave room for unscrupulous people to run away with their monies.

The Finance Ministry is also looking at reforming the government pension funds. World Bank assistance is being sought on how the state can develop a pension reform strategy.

"The final target is to see that EPF (Employees' Provident Fund) is managed like a proper provident fund," he said.

EPF is now being managed by the Central Bank relatively well. Their whole consideration is protection, and they want to ensure their investments are prudent.

"That's the first thing to do, because if there are pension fund problems then there are huge problems. We don't want the Maxwell sagas here," he said.

The focus of the Central Bank, is that the reform will be within the prudent guidelines to invest in other areas within limits.

For instance they will be one of the investors in the Sri Lanka Telecom's IPO.

"But the question is at what limit? You have to be careful about it, as EPF is now about a US$ 4 mn fund and it's big by any stretch of imagination."

He said, that as part of the reforms, EPF will be split into three of four units and be run separately. Eventually in a few years time, these funds will be opened up to private fund managers.

At present, private pension funds must be registered with the Labour Commissioner.

The key pension and provident fund schemes in Sri Lanka are the Public Service Pension Scheme (PSPS) for the public sector; the Employees Provident Fund (EPF), the Employees Trust Fund (ETF) and a number of Approved Private Provident Funds (APPF's) for the formal private sector; and three voluntary contributory (though heavily subsidised) schemes recently introduced by the state covering farmers, fisherman and the self employed.

There are also about seven market based contributory provident funds run by a number of banks and insurance companies. In all, only about 50 percent of the labour force is covered by some kind of pension scheme.

In 1996, legislation was passed prohibiting the establishment of any new APPF's creating uncertainty about the legal standing of the 200 existing ones, and their ability to accept new participants.

According to the IMF's 1998 country report, APPF's total assets amounted to around Rs. 20 bn. "There is a perception that APPF's are poorly managed and regulated. Returns on APPF's are low and accounts in the APPF's are not portable," the report said.

The Fund says EPF's average after tax real rate of return on investments from 1972-98 was 1/4 percent. "Both EPF and ETF are not efficiently managed and adequately regulated, which has significantly dampened their popularity with the labour force," the Fund said calling for 'improved investment returns of both funds.'

GAC Shipping wins Shell Gas contract

By Dinali Goonewardene

GAC Shipping Ltd has won a contract to manage the conventional buoy mooring of Shell Gas Ltd. Pilotage, mooring, unmooring, safe discharge of LPG, transportation of personnel and maintenance of the off shore terminal will be carried out by GAC Shipping, company officials said.

Shell's LPG import and storage facility is one of the most sophisticated in the South Asian sub continent and connects the gas storage spheres by underground to the ships used to import gas. A pipeline reaching 3.5 km off shore is connected to a flexible hose which is connected to the ship. There will be four mooring buoys within which vessels will be moored and this will be used as Shell's import terminal of LPG. It is estimated that five vessels of 3000 tonne capacity will discharge LPG every month. The vessels have a turnaround time of 24 hours.

GAC Shipping won the contract amidst competition from international marine companies such as Lamnalco of Dubai and PSA Corporation of Singapore. GAC Shipping offered foreign expertise through its network of international companies. GAC Shipping is a joint venture between Gulf Agency Company of Sweden and the MacLarens Shipping Group. It was established in 1993 and offers a comprehensive shipping service in Sri Lanka.


More Business

Return to Business Contents


Business Archives

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

Please send your comments and suggestions on this web site to

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

Presented on the World Wide Web by Infomation Laboratories (Pvt.) Ltd.

Hosted By LAcNet