VAT further burdens will be heaped on the public?
Finance Minister K.N. Choksy and Deputy Finance Minister Bandula Gunawardene, grappling with the problem of reducing the cost of living with the introduction of VAT, frown as they study a document at last week's news conference. It was held to explain how prices would come down as a result of the new tax system and the exemptions given to many essential commodities. But the public remains sceptical about government assurances. Pic. by Athula Devapriya

Small business enterprises against the wall
By John Breusch
The government's economic crisis is driving many small to medium enterprises (SMEs) to the wall as public institutions delay or simply avoid settling debts to private contractors, according to SME representatives.

The problem is compounded by the government's failure to force banks to soften their treatment of companies which have defaulted on loan repayments, SME industry leaders claim.

"There are a large number of companies awaiting closure," said Nawaz Rajabdeen, vice president of the Federation of Chambers of Commerce and Industry. "The root cause is that the government doesn't have the money to pay for what they have purchased."

In May, the National Construction Contractors' Association of Sri Lanka' s western province division presented the government with a list of overdue debts owed to its members by government agencies. The total outstanding added up to about Rs. 2 billion, according to the division's chairman, Captain K.S.K. Perera.

"There's almost a total blockage of the cashflow," he said. "From the contractor's point of view it's almost an economic dislocation."

Perera said his own company, Sisira Builders Pvt Ltd, is still awaiting payment for the construction of a state library in Badulla for which Rs. 4.9 million should have been paid by mid-March and a further Rs. 2.8 million in April.

The project is not the subject of any dispute or litigation, he said. Perera said that for the past two years government agencies have routinely delayed payment of their bills by three to five months.

But the situation had worsened since the beginning of this year, he said. Officials at Uva Provincial Council had told him the debt could not be paid because they were still awaiting funds from the Treasury.

The government has admitted that it faces an economic crisis, with its debt repayment obligations outstripping revenue. But it is not certain that the problem has led to a liquidity crisis, with systemic failure by government agencies to pay their bills.

Gamini Karunaratne, the senior deputy general manager of treasury at Hatton National Bank, says he had seen no evidence of the government being unable to pay its debts.

"Some of my clients have recently been paid very fast [by government agencies]," he said.

But Rajabdeen said the government's cash crisis had made it impossible for many SMEs to keep servicing their debts to banks, which were responding by utilising their powers of "parate execution" to close businesses down and sell their assets.The UNP government had promised that it would force the banks to take a softer stance on defaulting borrowers by helping them trade their way out of trouble, he claimed.

But Rajabdeen said the government had not fulfilled this promise - a failure evidenced by the many notices that can still be seen in newspapers advertising the sale of failed business's assets.

While larger commercial private banks such as the Commercial Bank and HSBC were attempting to give troubled business a second chance, the state-run Bank of Ceylon and many smaller lenders had not followed suit, he said.

"The banks should resist parate litigation and case-by-case reassess and see if you can revive the company," he said.

Pakistan delegation boosts SL trade links
A high-powered trade delegation from Pakistan met members of the Federation of Chambers of Commerce and Industry (FCCISL) in Colombo on Friday aimed at boosting trade ties between the two countries, a chamber statement said.

The delegation was accompanied by the Pakistan High Commissioner for Sri Lanka Ashraf Qureshi and Tanweer A. Khaskheli, Counsellor at the Pakistan High Commission.

The mission's objective was to identify the areas of cooperation which will be beneficial to both countries, promoting bilateral trade including exports, imports, joint ventures, services and cooperation at government and private level.

During their stay the delegation met with several leading organisations and clinched several deals.

"Sri Lanka and Pakistan have been enjoying a very cordial and strong relationship which has helped greater bonds of friendship and exchange of cultural, social and trade ties," said Nihal Abeysekera, Vice President, FCCISL during the meeting.

"Leaders of our nations, Sri Lanka and Pakistan, have already, achieved a high degree of success in bringing the people of our two countries much closer especially through the FTA and our association have been pleasant since historic times. We will still cherish such cultural, commercial and spiritual affinities," added High Commissioner Qureshi.

Seylan MB reports 1st half profit
The Seylan Merchant Bank (SMB) Group has reported profits in the first half of 2002, turning around the losses of the corresponding period last year.

In results released this week, the SMB Group reported a pre-tax profit of Rs. 6.7 million, a growth of 117 percent from a loss of Rs. 39 million in 2001. Gross income grew 53 percent to Rs. 248 million. Seylan Merchant Bank reported a pre-tax profit of Rs. 826,500, a growth of 102 percent compared to a loss of Rs. 41 million in the first half of 2001 and gross income of Rs. 203 million, a growth 40 percent.

Net interest income growth achieved by the Group and the Bank was a noteworthy feature of this performance SMB's Director/General Manager Rohan Senanayake said. The Group's net interest income grew from a negative income of Rs. 7.3 million to a positive income of Rs. 28 million and the Bank's net interest income grew to Rs. 15 million from a loss of Rs 4.6 million in the first half of 2001.

Govt says VAT will bring down prices
The introduction of the value-added tax (VAT) should bring down the cost of living because a range of essential food items, drugs and pharmaceuticals have been exempted from the new tax, Finance Minister K.N. Choksy said last week.

"The main aim of the VAT is to make it easier for the householder to manage his household budget and to simplify the tax system for the benefit of business houses," he told a news conference.

This was done despite the "very difficult" revenue position of the government and a heavy outflow of funds to service debt, he said.

Many items that were previously subject to the 12.5 percent Goods and Services Tax and the 6.5 percent National Security Levy were now exempt from VAT, he said.

These include rice, rice flour, wheat, bread, infant powder milk, liquid milk, coconuts and coconut products, vegetables, eggs, fish, fruit, spices, crude oil, kerosene, bunker fuel, pharmaceuticals and medical equipment.

These exemptions coupled with previous cuts in taxes and surcharges should result in lower prices, he said.

The government would lose about Rs. 800 million in revenue because of these exemptions.

"We expect a very definite reduction in these prices," Choksy said. Traders should co-operate with the government to ensure the benefits of the VAT exemptions are passed on to consumers, he added.

Deputy Finance Minister Bandula Gunawardene said that the government would have to take stern action against businessmen trying to profit from the new tax system at a time when the country was facing serious economic difficulties.

With no taxes on most essential food items, any price hikes would be the result of factors other than VAT such as the depreciation of the rupee and rain and drought which affect supplies, he said.

However, it was not clear how VAT on inputs would affect prices.

A 10 percent VAT has been imposed on poultry feed, planting materials and vegetable seeds, fertiliser including rock phosphate, unprocessed meat, powdered milk, coconut oil, potatoes, onions and chillies.

Gunawardene declined to answer a question on how taxes on inputs such as fertiliser would impact on prices.

Representatives of associations of traders of vegetables, fruit, rice, fish and motor vehicles and bicycles who were present at the news conference said there would be some reduction in prices.

But the official representing bicycle manufacturers was unable to say how the VAT will lead to a reduction in prices because of the tax charged on parts used to assemble the bicycles.

Importers of re-conditioned motor vehicles from Japan said there would be some reduction in prices but that they were unable to pass on the full benefit of a lower VAT owing to the appreciation of the yen.

Infrastructure development:
Future shape of SL-Malaysian trade ties
Economic relations between Sri Lanka and Malaysia are likely to take a new form as a result of the recent visit to Kuala Lumpur by a high powered investment promotion delegation led by Prof. G.L. Peries, Minister of Enterprise Development, Industrial Policy, Investment Promotion and Constitutional Affairs and including BOI Chairman/ Director General Arjuna Mahendran.

A BOI statement said that what was clear is that Malaysian interest in Sri Lanka's development is focused on infrastructure. Malaysian money and expertise will go into areas where that South East Asian nation excels in, namely port development, highways, low cost housing and township development.

The delegation was overwhelmed by the interest of a large number of companies specialising in infrastructure development. This interest will pave the way for a visit to Sri Lanka, in the near future, of a Malaysian government/ private sector delegation headed by Sami Vellu, Minister of Works and Public Utilities.

West Port is a good example of an enterprise that has shown considerable interest in further developing Colombo Port. A similar company is Port Tanjun Palapas Port, which has also looked at developing a Sri Lankan port. Hambantota, Galle and Trincomalee have all been earmarked for future modernisation and are potential candidates for Malaysian investment, the statement said.

Another strong contender is United Engineers, Malaysia Berhad listing among its major projects the futuristic new Kuala Lumpur International Airport, the modern stadium where the previous Commonwealth games were held, the North-South Highways and the Monorail-Light Rail Transport System (MRT & LRT). This company has been an active player in the development of Malaysia and has also undertaken major contracts in India, Morocco, the Philippines and Thailand.

Minister Peries met officials from Perodua, a Malaysian automobile constructor which has expressed interest in the manufacture/assembly of the "K" car in Sri Lanka.

The visited also resulted in a boost to existing Malaysian investment in Sri Lanka. After a visit by the minister, the Chairman of Malaysia Telecom announced that they would invest $ 90 million in their existing MTN system in Sri Lanka.

Jaffna branch of Commercial Bank has ATMs
Commercial Bank has strengthened its commitment to the ongoing peace initiatives and to the people of the northern province by fully refurbishing its nearly 100-year-old Jaffna branch and linking it up with their island wide network.

Amitha Gooneratne, Managing Director of the bank, recently opened the fully refurbished branch which is equipped with the latest technology while every modern banking convenience available in other parts of the country is now made available to customers in Jaffna.

He said: "Our history in Jaffna goes back nearly a 100 years and even during the war, the Commercial Bank branch was open to the public.

But due to obvious technological and logistical reasons, we could not offer all the services and facilities available in other parts of the country. As the country's premier financial institution we have a responsibility to provide comprehensive financial services to the citizens of Jaffna and we are very happy that we have fulfilled that by providing the latest banking technology and facilities to Jaffna."

A representative of Jaffna residents said, "with the current positive outlook, normal life is gradually returning to Jaffna. Those who left due to the war are now returning to their homes. Some companies have already started their operations in Jaffna and a large number have expressed great interest in setting up businesses. The people of Jaffna are pleased to see Commercial Bank taking the initiative to provide people with up to date banking technology".

On the same day Commercial Bank commissioned the second ATM in Jaffna, which will add more convenience to customers.

As the peace initiatives progress, Commercial Bank intends to open more ATMs and branches in the north, a bank statement said.

Manoharan and Sangakkara Associates join SJ Associates
Manoharan and Sangakkara Associates, an independent firm associated with Deloitte Touche Tohmatsu (DTT), has joined up with SJ Associates to launch SJMS Associates.

T. Someswaran, Senior Partner and P.E.A. Jayawickreme Managing Partner of SJ Associates said, "We are indeed delighted that SJ Associates joins Manoharan and Sangakkara Associates to represent DTT in Sri Lanka. Our clients will benefit through the combined service capabilities of our two entities and the support offered by the global DTT network."

M.B. Ismail, Partner of Manoharan and Sangakkara Associates said they were pleased to join SJ Associates and said the joint venture would create a bigger and more diversified organisation.

SJMS Associates will have 14 partners and 330 staff making it one of the largest professional services organisations in Sri Lanka.

Deloitte Touche Tohmatsu is one of the world's leading professional services firms, delivering world-class Assurance and Advisory, Accounting, Auditing, Tax and Management Consulting Services.

More that 90,000 of its professionals in over 130 countries serve nearly one-fifth of the world's largest companies as well as large national enterprises, public institutions and successful fast growing companies.

Practical business education for schools
By Akhry Ameer
Ever heard of a group of students posing an economic threat to their school canteen?

When 30 students of Gothami Balika Maha Vidyalaya calling themselves the Silver Line Company started selling food items within the school premises they were requested to change their line of business by the school administration as the school canteen incurred losses in consequence. The company is much like any other business; they have their own president, a board of directors, conduct board meetings and even carry business cards. The students are part of a practical business education programme operating under the guidance of Young Entrepreneur Sri Lanka (YESL).

YESL, a non-profit, non-government organisation, has been conducting practical economic and business education programmes in Sri Lanka since 1996. Yet very few are aware that this organisation last year encompassed 20,000 students at various levels in its programmes.

The programme becomes very useful especially at a time where the education curriculum in Sri Lankan schools and universities is being criticized due to its failure to gear children to face the challenges of the business environment when they leave school. YESL is an affiliate body of Junior Achievement International (JAI), the world's largest and fastest-growing non-profit economic education organisation that conducts programmes in 112 countries.

The Silver Line Company project is aimed at the senior students in schools who have completed their Ordinary Level examinations. The students at Gothami BMV finally had to settle on selling printed bookmarks when their economic threat to the canteen worried school administrators.

The project requires students to group together, conceive a line of business and float a company to conduct the business. These companies are just like normal businesses but are registered under YESL. After the registration trained volunteers conduct a few business initiation sessions with the students. Subsequently the students have to venture on their own with an assigned teacher-in-charge as they are given guidance material by YESL.

These materials have been designed by JAI and provide instructions on how the students should conduct board meeting, marketing programmes, maintain accounts, etc. The students are also required to follow a set of regulations they way businesses have to abide by company laws.

"It makes them workforce ready", says John Geier, Director - South Asia Region who operates from the JAI regional office at the Hilton JAIC Tower. He further explained, "The programme also promotes civic mindedness and business ethics as the students have to pay a nominal fee as tax, do some social service for the school, and even return the capital and declare dividends once the company realises profits and is liquidated at the end of the year." The programme has proved to be very successful. A group of students who had floated a company with Rs. 1,500 conducted a musical show and realised profits to the tune of Rs. 550,000.

Another special benefit of this programme in Sri Lankan schools is English education because the programme requires conducting all affairs in English including meetings, correspondence, etc. In addition, it has 24 different programmes designed for all levels from Grade 1 to 13 together with teaching material.

At the elementary level it starts with simple activities like story telling which has a connected economic aspect. However, "teachers don't know much about the programme and they see it as a waste of time" said one of the students.

The local programmes that started with nine schools today covers 200 schools. YESL has the approval of the Ministry of Education for its programmes and is looking at expanding towards some of the lesser accessible schools in rural areas. Many leading businesses have been sponsors of the programme but the organisation is hoping that more sponsors will come on board. Patrick Amarasinghe, President of YESL says that the demand has grown and they need more support from the private sector.

He further added that this is the only programme where the private sector businesses not only gain mileage from sponsorship and new customers but also a new workforce that is business ready. According to him some of the companies that have supported them have also recruited some of these young entrepreneurs.

Amarasinghe also emphasised that the contribution always need not be cash. He says that the organisation needs volunteers from the business circle who could follow the guidance material and guide a large number of students.

JAI also has other programmes that are funded by large global companies and bring together some of the world's best from member countries through exchange programmes, computer simulated competitions, etc. JAI was founded in 1919 in the US where it now has a network of 156 offices.

Globally the organisation annually covers over 5.5 million young people from countries such as Albania to Zimbabwe. The YESL could be contacted at 27B, Railway Avenue, Nugegoda. Tel: 815162

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