Financial Times

Plantation companies say management fees brought down

Plantation companies say the management fees, paid to the holding companies, are no longer a large burden on the Regional Plantation Companies (RPCs). The companies say management fees, for managing the 21 RPCs in rubber and tea production, have been broght down, and that some companies are not even charging management fees anymore.

“The management fees going to the holding companies have been revised downwards. Some companies don’t even charge a management fee any more. About eight companies do not charge management fees any more. The others have reduced the fees by about 50%. The management fees are also monitored by the government,” said the Chairman of the Plantation Services Group of the Employers Federation of Ceylon (EFC), Lalith Obeyesekera, at a press conference organised by the Planters’ Association of Ceylon last week.

Management fees were known to take out millions of rupees, every year, from the RPCs. However, while not saying how much is still paid as management fees, the companies maintained that the management fees are no longer as high as it used to be.

“Some companies use a formula based on a percentage of profit. So if there is no profit, there is no payment. Some companies had the management fee revised downwards when lease rentals were restructured, after discussions with the Ministry of Plantation Industries. So the management fees are not as high as they used to be,” said Mr Obeyesekere. Meanwhile, the latest plantation worker wage increase in September, effective from April, is expected to sharply impact plantation cash flows. The total wage package increased from a maximum Rs 290 per day, to Rs 405 per day. Planters say the wage increase will turn industry profits into losses unless market prices for tea and rubber continue to remain high.

“The wage increase is approximately a 40% increase. This will come to about Rs 6 billion per year. The net profit of the RPCs is about Rs 1.2 billion per year. So under the current situation, most certainly this will lead to a loss. But this situation could change on the prices,” said the Chairman of the Planters Association, Dhamitha Perera.

“In the event that tea and rubber prices increase sharply and remain high, there will be a profit. If prices do not remain at high levels, there will be losses,” said Mr Perera. Tea prices have been increasing over the last few months because of a global and national supply shortage.

“There is a severe shortfall of tea globally at the moment, amounting to about 80 million kilos. About 50% of this shortfall is from Sri Lanka, at about 41 million kilos. Because of this shortfall in supply, prices have increased. But this may not continue,” said Mr Perera. To tide over the income uncertainty plantation companies are asking the government for tax relief and the industry cess money. The plantations are asking to be ‘zero rated’ under the VAT system, to reclaim input VAT. “We are asking to return to the zero rated status on VAT.

This is not something new. Until 2006, plantations belonged to the zero rated category and qualified to claim input VAT,” said Mr Perera. Plantation companies make large VAT payments on operational costs like electricity, fuel and fertilizer. Input VAT claims can reduce VAT payments by about Rs 20 million per year for a plantation. The plantations are also asking the government to re-invest industry cess funds, back into the industry.

The cess on each kilo of tea exported, was increased from Rs 2.50 to Rs 4.00. The industry says this should give a total cess collection of about Rs 1.2 billion per year. But, while some funds have been released, the planters say the full amount has not been put back into the industry.

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