Untitled Document

VC's welcome benefits, wary of implementation
By Akhry Ameer
Venture Capital (VC) companies have welcomed recent budget incentives being accorded to them, as recognizing the significant role played by the VC's in economic development by promoting entrepreneurial spirit and innovation.
However, they expressed the need to work together with the authorities to overcome ambiguities that may be caused in the interpretation of the Inland Revenue Act during the implementation stage.

"This budget has been a major break through in the understanding of the venture capital concept which is to promote businesses. These businesses would invariably bring in revenue by means of taxes to the government," said Nissanka Weerasekera, Managing Director/Chief Executive Officer of Nextventures Lt, who is also the President of the Venture Capital Association in Sri Lanka.

The VC's feel that their involvement in the implementation stage will highlight issues relating to Venture Capital investing to the relevant authorities and therefore clear or avoid any misunderstandings that prevailed in the past. Elaborating on this, Weerasekera, said that a VC should be allowed to invest immobilized funds in other instruments such as Treasury Bills and Call Deposits to maintain the time value of money. However, the Department of Inland Revenue in the past has cited this as being a different business and charged taxes.

The venture capital industry in Sri Lanka was kick-started by the introduction of relevant sections in the Inland Revenue Act in the early 1990's. These sections state that venture capital is "…equity or equity featured capital seeking investments in companies which promote new products, new processes or new markets" and continued that Venture Capital "…means a chance for total loss of capital invested as well as a chance to participate fully in the business growth."

This year's budget proposals offer existing VC's a concessionary corporate tax of 20 percent and a five year tax holiday for VC's established on or after April 1, 2003. In addition the investors will be offered a qualifying payment relief. Yet another incentive is the relaxing of exchange control procedures on a case-by-case basis for new VC's to be allowed to invest 20 percent of the fund in global activities of a local company which has foreign subsidiaries or branches.

However Weerasekera pointed out that this is an antithesis as most companies resort to a practice of establishing the holding company abroad and the subsidiary in Sri Lanka. These are some of the other ambiguities that may not tap the full potential of the budget if there is no close cooperation during implementation. "We hope to be able to assist the government achieve its objectives in providing this relief," he said.

Dipped Products Ltd does strategic business audit
Dipped Products Ltd., one of Sri Lanka's biggest value added exporters and a leading player in the global rubber gloves market, has concluded a Strategic Business Audit.

It was based on the '8S' model developed by Marketing Technologies International (MTI) Consulting.

In carrying out the strategic audit, MTI's Bahrain based CEO and international consultant, Hilmy Cader, identified several key success factor of the DPL: company leadership, staff commitment, investment in technology at the right time and the decision to add value compared with a commodity approach.

MTI's 8S is a broad spectrum strategic planning process that starts with the scope of the business and works its way down to systems in a sequential and flexible manner.

HNB to expand in Lanka's north and east
By Thushara Matthias
Hatton National Bank plans to expand its operations in the north and east after its selection to handle the region under government efforts to help small and medium enterprises by dividing the island into five industrial zones.

Five banks have been assigned to develop small and medium enterprises in the five regional zones. This is being undertaken as part of the initiative to restructure the Board of Investment.

The major areas that would be of interest in the north are ice factories, brick making, transportation and cultivation of paddy, vegetable and fruits. A team of high-ranking officers of HNB visited the north and east after the A9 highway was re-opened.
HNB has decided to provide loans to farmers who are already engaged in the cultivation of fruits and vegetables to develop their business.

Loans amounting to five million rupees have been granted to farmers in Jaffna as cultivation loans so far. Speaking about the success of HNB in rural banking, I. H. A. Wickramasinghe, Senior Manager- Industrial Credit said, "Everyone thinks that the small man defaults. But that concept has been proven wrong."

HNB has eight branches in Jaffna, Trincomalee, Mannar, Vavuniya, Batticoloa, Kalmunai, Akkaraipattu, and Ampara. The SMEs will be given loans at 14 percent interest with a repayment time of ten years and a two-year grace period.
The HNB also hopes to extend its Forward Sales Agreements, already in use in the Southern region, to other regions.

Gamini Yapa of HNB's Project Finance Division said that the Forward Sales Agreement plays a major role in the paddy market where prices fluctuate.

Back to Business