By: Staff Writer

June 30, Colombo (LNW): The Sri Lankan government has reported that during a ban on vehicle imports, 44,430 vehicles entered the market, resulting in potential tax losses amounting to Rs. 100 billion.

This revelation came after discussions with local vehicle assembly companies. Of these vehicles, 38,144 were motorcycles and 6,286 were motorcars.

Vehicle assembly in Sri Lanka dates back to the 1980s with the establishment of the Upali Fiat car assembly, pioneered by Upali Wijewardene.

A formal vehicle assembly factory was set up in 2002. Despite restrictions on importing used vehicles older than three years, imports continued by dismantling vehicles before shipping. These vehicles were often older, having been used for 5-6 years.

Since 2004, Sri Lanka has had a local vehicle manufacturing facility producing vans and cars, assigning vehicle identification numbers according to local standards. The first locally assembled vehicle was launched around 2006.

Taxes on vehicle production are governed by the Excise (Special Provisions) Act No. 13 of 1989, allowing for exemptions and levies as amended through gazette notifications, the latest being gazette No. 2364/36-2023 issued on December 31, 2023.

The Act outlines five methods for tax deductions, including provisions for foreign ambassadors, presidential concessions, duty-free shop purchases, and ministerial gazette notices aimed at economic conditions.

This situation underscores ongoing issues in tax compliance and regulation within Sri Lanka’s vehicle industry amidst efforts to balance economic development and revenue collection.

Around 2006, Sri Lanka’s first locally assembled vehicle was released to the market. Taxes were also levied on the production of these vehicles under the Excise (Special Provisions) Act No. 13 of 1989. According to this act, taxes were both imposed and exempted.

The act clearly outlines the procedures for collecting such charges and granting exemptions. Specifically, Section 3(i) of the Part 2 of the act explains the manner of taxation and tax concessions.

The minister has the authority to levy and set taxes, and a gazette is issued for this purpose. This gazette has been amended from time to time, with the latest amendment being gazette No. 2364/36-2023, issued on December 31, 2023.

According to the Excise Act, five methods of deducting tax on vehicles or any other products have been discussed. One method is for foreign ambassadors and those at the United Nations, and the criteria which can be used to exempt their taxes is clearly stated in the act.  The second method allows the President of the country to grant tax concessions on imported goods. The third method of tax exemption permits tax relief for items purchased from a customs duty-free shop. The fourth method allows the minister to grant tax concessions through a gazette notice, considering the state of the country’s economy.

By: Staff Writer

June 30, Colombo (LNW): Sri Lanka experienced a significant boost in foreign exchange revenue from remittances and gross services totalled 2,016 million dollars, according to the central bank.

This surge in revenue accompanied a substantial rise in tourist arrivals, has also had a positive impact on the country’s imports and merchandise trade deficit, gradually mitigating it as tourism earnings increased and individuals within the sector spent their wages and other earnings.

Sri Lanka’s current foreign exchange earnings from exports, remittances and gross services totalled 2,016 million dollars, exceeding imports of 1,404 million dollars by 611 million US dollars in May 2024, official data showed.

Sri Lanka’s exports were 1,011 million dollars in May, remittances were 460.1 million dollars and gross services inflows including from tourism was 460.1 million dollars.

The net services account surplus, after deducting outward like tourism, sea and air transport of 229.8 million US dollars was 230.3 million dollars.

Total inflows from exports, remittances and net services were 1,786 million dollars, which exceeded merchandise imports by 318.4 million US dollars.

When people get money from tourism or remittances, they will use them for food, fuel or for other imports driving imports and triggering a trade deficit.

Private credit will also drive imports as savings of the people are turned into investments in buildings, vehicles or machinery.

There is no pressure on the currency as the balance of payments is not in deficit.Sri Lanka has posted a balance of payments surplus of 1,364 million dollars up to May 2024, slightly lower than 1,597 million dollars in 2023.

Pressure on the currency is triggered only when money is printed under flexible inflation targeting, (a type of real interest rate doctrine based on historical 12-month inflation) or inflationary policy is deployed to target potential output (overt macro-economic policy).

The resulting monetary instability is then based on artfully blamed on ‘deficits’ or imports by inflationists and other Mercantilists though a banking system is not a sentient being to distinguish between private and official credit, analysts say.

When reserve collecting central banks without a clean float engages in such activity, currencies collapse, governments get ousted amid social unrest and countries eventually default.

Sri Lanka is currently running deflationary policy but the rupee is under some pressure due to earlier excess liquidity from dollar purchases (strong side pegging) which boomerang on the exchange rate, when left unsterilized or weak side pegging is not deployed.

By: Staff Writer

June 30, Colombo (LNW): Another controversy has arisen regarding the selection of a Contractor for the construction of the New Terminal Building at the Bandaranaike International Airport, coming under the purview of Minister Nimal Siripala De Silva’s Ministry, namely the Ministry of Ports, Shipping and Aviation

The tender for constructing a new terminal at Bandaranaike International Airport (BIA) is poised to be awarded to the Sri Lanka-China Joint Venture (JV) Company, a decision upheld by the Procurement Appeal Board (PAB).

This joint venture consists of Consulting Engineers and Contractors Ltd. (CEC) from Sri Lanka and the China National Aero-technology International Engineering Corporation (CAIEC). However, final approval hinges on the Cabinet’s decision and potentially the Court of Appeal’s ruling.

The call for bids, managed under the International Competitive Bidding category by the Standing Cabinet-Appointed Procurement Committee (SCAPC), was issued around 4 December 2023.

The project, initiated in December 2020 by Airport and Aviation Services (Sri Lanka) Ltd. (AASL) with funding from the Japan International Cooperation Agency (JICA), faced delays due to the economic crisis, pushing its expected completion date from 2023 to an unspecified future date.

The new terminal aims to enhance accessibility and incorporate environmentally friendly features. It includes a remote apron with 23 aircraft parking stands, Ground Support Equipment (GSE) roads, and three stub taxiways.

The terminal will feature 96 additional check-in counters, eight baggage claim belts, seven baggage make-up carousels, 16 contact boarding gates with 28 Passenger Boarding Bridges (PBBs), and six bus gates.

Initially, the Technical Evaluation Committee (TEC) recommended awarding the contract to Sanken Construction Ltd., a local engineering firm, a recommendation accepted by the SCAPC.

Despite this, unsuccessful bidders appealed to the PAB, which subsequently recommended the CEC and CAIEC JV. Secretary K.D.S. Ruwanchandra of the Ministry of Ports, Shipping, and Aviation confirmed this, stating the decision has been submitted to the Cabinet and awaits their response. He noted the pending court case could alter the outcome.

Sanken Construction Ltd. has contested the PAB’s decision through a Writ Application (No.343/2024) in the Court of Appeal.

They allege the PAB made its recommendation without granting them a hearing and despite the JV’s non-responsiveness to technical specifications, as detailed in the TEC report dated 15 March.

Civil Aviation Authority (CAA) Chairman G.S. Withanage, also Chairman of the PAB, emphasized the independence and transparency of the process but refrained from commenting further due to the ongoing court case.

By: Dinesh Weerakkody

Two leading Ministers Dr. Ramesh Pathirana and Dr. Wijeyadasa Rajapakshe on Sunday lambasted the banking sector for half-hearted support to the struggling Micro, Small and Medium Entrepreneurs (MSMEs) thereby endangering a quicker recovery in the economy following multiple crises. Industries and Health Minister Dr. Ramesh Pathirana on Sunday urged enterprises to take a stand against unfair banking practices and to continue lobbying for their interests regardless of political affiliations.

Speaking at an awareness conference organised by the Ceylon Federation of MSMEs on ’Business debt and finance management’ on the side-lines of the Industry Expo 2024, Pathirana insisted the need for businesses to create conversations and pressure policymakers to address their concerns. Dr. Pathirana warned that banks might channel most of the funds from international credit lines to their wealthy clients, calling for vigilance and protest against such practices. “We learn that banks are trying to push most of the funding facilities to their already rich clients from the loans extended by the international agencies like the World Bank and the Asian Deve-lopment Bank,” the Industries Minister alleged. 

He also pointed out that promoting fair banking practices are essential to drive economic development in Sri Lanka. Separately at the same conference, in a scathing critique of the banking system, Justice Minister Dr. Wijeyadasa Rajapakshe criticised the policymakers for their failure to establish a credible economic policy to support enterprises and entrepreneurs. In practice no bank can survive if it alienates its customers. As with all business, it’s a balancing act. In general Government policies have been designed to limit bank failures and the panic they can ignite. Therefore the safety and soundness of banks is paramount, growing all banks to such levels of safety and soundness should be the deliverable, not just a handful of systemically important banks. The recent pronouncements on a development bank in Sri Lanka limited to serving the needs of the MSMEs, should be pursued with vigour.

True role of banks

Banks play a pivotal role serving as the backbone that the entire financial system rests on. Its primary role is to safeguard depositors and to disburse loans. Banks however as the primary supplier of credit as the Minister highlighted have a crucial role in stabilising the economy and supporting their customers. Banks in general accept deposits and provide loans, and derive a profit from the difference in the interest rates paid and charged to depositors and borrowers respectively. This process performed by banks of taking in funds from a depositor and then lending them out to a borrower is known as financial intermediation. 

Through financial intermediation, certain assets are transformed into different assets or liabilities. As such, financial intermediaries channel funds from people who have extra money or surplus savings (savers), and then lend to those who do not have enough money to carry out a desired activity (borrowers). Banking thrives on the financial intermediation abilities of financial institutions that allow them to lend money and receive money on deposit. The bank is the most important financial intermediary in the economy as it connects surplus and deficit economic agents. 

 Way forward

Banks are vital institutions in any society as they significantly contribute to the development of an economy through facilitation of business. Banks also create money and facilitate the growth of savings in the economy, and are instruments of the Government’s monetary strategy, among many others. The most important service provided by a bank is the provision of credit. Credit fuels economic activity by allowing businesses to invest beyond their cash on hand, households to purchase homes without saving the entire investment in advance, and enables governments to smooth out their spending by mitigating the cyclical pattern of tax revenues, and to invest in huge public infrastructure projects. Therefore, the key role for a financial institution is to facilitate investment and employment to sustain the long-term economic growth of the country. 

What Sri Lanka needs is four strong banks with an asset base exceeding Rs. 2 trillion each by 2025, to get us to an over-$ 100 billion GDP economy. Therefore, the Government should push for bank consolidation keeping in view synergies and the benefits of mergers, with the Government role purely as that of a facilitator. However in certain institutions there is certainly a need to get rid of board toxicity and the management capacity deterioration, and investigate the vested lending. 

Therefore, in the final analysis, the President, as the Minister of Finance (which supervises the Central Bank and the Securities and Exchange Commission [SEC]), has a great opportunity to drive the financial sector reforms agenda, thereby giving a very strong signal to the financial markets that the Government is ready to support genuine investor appetite and provide competitive businesses the freedom to create wealth and growth. Whilst the banks need to ensure that they demonstrate to their clients that they have their best interests at heart.

Reference:

https://www.ft.lk/top-story/Ministerial-duo-deal-heavy-blow-to-banks/26-763434

https://www.fitchratings.com/research/banks/fitch-places-13-sri-lankan-banks-on-rating-watch-negative-12-04-2022

(The writer was Chairman of the largest two private sector commercial banks and a director of a development bank.)