Sri Lanka tile monopoly hit by loss of import tariff protection

ECONOMYNEXT – Sri Lanka has removed import tariff protection for highly profitable domestic ceramic tile manufacturers, an effective monopoly controlled by the Royal Ceramics group, according to the government’s 2016 budget and analysts.

Finance Minister Ravi Karunanayake said import-related duties will be revised downwards on building materials such as steel, tiles and sanitaryware.

“To address the short supply and high prices of building materials such as steel, tiles and sanitary ware, import-related duties will be revised downwards,” he said.

These products will also be remove from the negative list of the Board of Investment, enabling companies operating under the investment promotion agency, which gives tax breaks, to freely import tiles and sanitaryware.

But Karunanayake also said a new valuation system will be introduced to curb under invoicing of imports like tiles with effect from January 01, 2016.

“The tile sector may suffer from increasing competition stemming from lower margins and new entrants to the industry,” First Capital Equities said in a note on the budget.

.Bartleet Religare Securities said the proposed reduction of import duties on tiles and sanitaryware, currently at around 77 percent, would impact local manufacturers Royal Ceramic Ltd., Lanka Tiles and Lanka Walltile.

The new customs duty rate has not yet been specified.

“Despite the present protection, the tile industry faces intense competition from imports from China, India, Bangladesh and Indonesia,” Bartleet Religare Securities said in its budget analysis.

Sri Lanka stock exchange chairman lauds budget, tax privileges

ECONOMYNEXT - Chairman of Sri Lanka's Colombo Stock Exchange, Vajira Kulathilake has lauded the tax breaks and other support given by a budget for 2016 to the stock market.

He has also praised the removal of a small share transaction levy, which however tended to raise transaction costs.

The budget cut corporate tax to 15 percent from 28 percent for most companies. It also cut corporate tax for listed plantations companies in which the state has shares.

The budget also proposed the use of retirement fund money to fund venture capital, one of the riskiest forms of investments in the world.

Sri Lanka has earlier give tax breaks to support venture capital firms, through which owners imported tax free cars and most of the firms went bust, partly due to lack of skills.

A well-functioning capital market, where the state does not hamper it, is vital to channel capital for investment and job creation.

The budget proposed the removal of several nuisance taxes on debt.

The stock exchange however has depended on tax privileges of various kinds for a long time.

Sri Lanka raised valued added tax and a turnover tax on basic goods but stock market capital gains are out of the reach of the tax net.

The full statement is reproduced below:

It is admirable to note the support extended to the capital market of Sri Lanka through the recent budget.

Firstly, it has maintained all the concessions granted to capital market by the previous Governments.

Secondly,it is a forward looking budget. It encourages introduction of REITs , an extremely positive step to introduce an alternative investment option i.e. real estate to investors. REITs will enable smaller investors to benefit from returns generated from real estate by investing small amount of money.

Encouragement given to list Dollar denominated securities of Foreign Companies will help Sri Lankan Capital Market achieve hub status in the region. Waiving of the requirement to set up SIA accounts to Foreign investors is also a positive step to minimize administrative burdens for global investors.

The budget has requested to expedite to de-mutualisation process of the stock exchange. This will enhance the Governance aspects of the capital Market. CSE and SEC will work towards achieving the target of completing this process during 2016.

It also encourages setting up Venture Capital and Private Equity Funds an essential pre-requisite for funding business from ideas of entrepreneurs to growth of such businesses These firms will act as feeders to capital market to raise capital or divestitures.

It should be highlighted that where ever Venture Capital and Private Equity thrived, the business enterprises developed and the countries achieved growth. An examples are South Korea. Most of the leading Technology companies such as Google, Facebook and Indian IT Companies are funded by Venture Capital and Private Equity Capital.

The budget has suggested to set up a SME board at the Colombo Stock Exchange . We will introduce this shortly. The idea is to offer a listing option for SMEs with less stringent conditions to raise capital.

The idea of divestures of non-core businesses of the Government and listing of Government owned entities is extremely helpful to the Capital Market growth and to increase market capitalization.

Removal of Share Transaction Levy will stimulate trading in the share market thus increasing the liquidity. This will help to address one of the major drawbacks of Sri Lankan share Market.

The budget has supported the minority share holders by increasing the minimum amount of dividend to be distributed by quoted companies

I should say this budget not only helps to activate the Capital Market but also supported a vision to achieve greater heights.

Sri Lanka proposes common firm to take-over telecom backbone, towers taxed in budget 2016

ECONOMYNEXT - Sri Lanka is to create a common user backbone firm under a state agency to take-over fibre networks, towers and spectrum, while each telecom tower will also be taxed at 50,000 rupees a year, a budget speech for 2016 said.

"I propose to form a special purpose company under the Information and Communication Technology Authority (ICTA) to bring about sharing of telecommunication resources efficiently and to protect air waves and the environment," a budget speech said.

"All the fiber optics owned by telecommunication companies and other authorities including the Ceylon Electricity Board, Road Development Authority and Sri Lanka Railways as well as spectrum and mobile towers are to be brought into this company."

The budget speech did not specify whether the assets would be expropriated to the state, or they would continue to be jointly owned and managed by a privately owned firm.

Telecom infrastructure become obsolete swiftly and needs massive capital injections every four or five years to replace and they also need to be maintained.

At the moment individual firms spend billions of rupees to install and maintain backbone infrastructure.

Though there are tested regulatory methods to promote joint use, Sri Lanka's Telecom Regulatory Commission became dysfunctional during the ousted Rajapaksa regime as it was kept as a subject coming under the President, according to industry analysts.

The budget also proposed a 50,000 rupee annual fee per tower due to a 'negative environmental impact'. Already competition and costs are encouraging the sharing of telecom towers.

It is also not clear what spectrum the budget is referring to, whether it refers to micro-wave backbone between towers or last mile spectrum reaching customers.

At one time the TRC had a robust stakeholder and public consultation process, which went in to dis-use with the agency coming under the President.

Sri Lanka vehicle taxes up, electric car levy up 1000-pct

ECONOMYNEXT - Sri Lanka has raised vehicle import taxes with electric cars which were charged low taxes going up over 1000 percent as the new administration struggled with a balance of payments crisis after printing money to pay hiked salaries of a bloated public service.

A Nissan Leaf electric car which was taxed at a very low rate of 200,000 rupees, is now taxed at 2.35 million rupees, pushing up the potential retail price over 5.5 million rupees.

The tax on a Toyota Axio car which was about 2.2 million rupees has gone up to 2.62 million rupees.

Sri Lanka customs is charging vehicles excise taxes a formula based on engine sizes after the budget.

The public service has been expanded since 2005 with the support of the Janatha Vimukthi Peramuna (JVP) party which pressures each administration to hire tens of thousands of unemployable graduates as new tax spenders.

The current administration which tried to trim the public service in 2004 to reduce the burden of the state on the poor, was kicked out for its trouble and it returned to power promising a 10,000 rupee salary hike to state workers, strongly backed by the JVP.

The ordinary people are already paying for the salary hikes and other 'benefits' given in a revised budget in January 2015 which was strongly approved by the JVP, in the form of currency depreciation after the central bank started to print billions of rupees to bridge the deficit.

The rupee has fallen from 131 to 142 to the US dollar so far this year. Last Friday another 8.0 billion rupees were printed.

Raising car taxes is a standard response in Sri Lanka to balance of payments crisis generated by excessive state spending accommodated by the Central Bank in the form of printed money and artificially low interest rates.

The new administration ended a feudal style privilege where the elected ruling class and state workers were given tax free and tax slashed cars while the ordinary man on the street was around 200 percent or more.

Sri Lanka makes it more difficult to start and run a business in Budget 2016

ECONOMYNEXT - Sri Lanka has put in number of new regulations and processes to start a business and keep and incorporated body alive, in a budget for 2016.

"It has been noted that most of the registered companies are not functioning," Finance Minister Ravi Karunanayake said in a budget for 2016.

"In order to make such companies activated, I propose to impose an annual fee on all the registered
companies collectible by the Registrar of Companies.

"Further in order to discourage voluntary registration, I propose to charge Rs. 500,000/- on voluntary liquidation of companies."

In Sri Lanka it is already extremely expensive to incorporate a business, which the basic documentation and secretarial filing expenses running into 50,000 to 80,000 rupees.


An enterprising person in a country like Vietnam will use such funds as capital to start a business, which is used up as fees in Sri Lanka.

In Delaware, USA where most the major US firms are incorporated, due its superior corporate law, a small firm can be set up for a fee of 89 dollars with the secretarial firm charging fees from around 80 dollar upwards (Delaware fee schedule).

There are additional fees based on issued stock but 1,500 no par stock can be issued free.

Under the budget proposal there is an annual fee of 60,000 rupees for private companies, 500,000 for public companies and 100,000 for other companies, perhaps making Sri Lanka quite a difficult place to start and a very expensive place to maintain an incorporated body.

The US is an extremely business friendly country, where most of the innovations happen and immigrants from all over the world come and set up firms selling new goods and services in a highly competitive environment.

In Singapore, a country which scores high in 'ease of doing business' a company can be incorporated for 300 Singapore dollar (about 30,000 rupees). The online registry promisesincorporation within 15 minutes.

"With effect from January 01, 2016, all business entities should be registered with their respective local councils at a nominal fee of Rs. 100 per year," Karunanayake said putting fresh burdens on those trying to start a business.

"For new business entities, thisregistration would be a pre requisite to obtain the electricity and water connections, and loan facilities from Banks."

Local government offices are among the most corrupt in Sri Lanka where bribes are demanded for anything from land division to a housing approval and citizens who are not willing to pay bribes are sent from pillar to post for months.