The Sunday Leader

Corruption Continues Despite Yahapalanaya

  • Investor now in good books with Minister Malik Samarawickrema

by Nirmala Kannangara

Upul Jayasuriya and Malik Samarawickrema

The good governance administration that came into power promising to wipe off bribery and corruption in order to provide relief to the people, continues to give relief to the ‘able’ but not to the poor masses.

Startling revelations have now come to light as to how the Ministry of Development Strategies and International Trade is attempting to aid and abet a leading steel manufacturing company in Colombo suburbs to enjoy the tax holidays given to them by the previous regime, although the investor has openly violated the Supplementary Agreement they entered into with the BOI in 2011.

The company in question is owned by a Rajapaksa front man, who allegedly has worked with the former First Family in money laundering activities, and was in the limelight a few months ago for being privileged to have obtained a 100-acre land for a tyre factory in Horana by the Board of Investment (BOI) on a 99-year lease for a lesser amount once again with the interference by the good office of the Ministry of Development Strategies and International Trade.

Former Chairman BOI, Presidents’ Counsel Upul Jayasuriya tendered his resignation last month as a protest of the subject Ministry’s attempt to stop him from cancelling the Supplementary Agreement entered into with the company in question for violating the agreement.

The unsatisfactory clarification sent by the Enterprise to the BOI and The BOI Board Paper that sought approval to cancel the agreement entered with the company in question

“The Project Monitoring Unit of the BOI, through Chairman Jayasuriya, presented a Board Paper on July 5, 2017 – the week before he tendered his resignation to obtain the board approval to cancel the said agreement as the investor had openly disregarded to fulfil the conditions of the agreement. It is learnt that the Board had decided to approve the request. In the event the agreement was cancelled, the investor had to repay the state more than Rs. 3 billion as the taxes the company was exempted from the profits the company was making so far, on the importation of project related capital goods and construction items and on importation of raw materials for the said project. The Ministry was not pleased with the action the former Chairman was to be taken and brought the pressure on Jayasuriya to withdraw the board paper to which the latter disagree and tendered his resignation,” highly reliable BOI sources who wish to remain anonymous told The Sunday Leader.

All attempts to get a comment from former Chairman Upul Jayasuriya were not successful as he did not respond to any calls nor to the text messages until the paper went for publication.

According to the sources, the Rajapaksa front man is now in good books with Minister of Development Strategies and International Trade, Malik Samarawickrema and is alleged to have bought a building owned by Minister Samarawickrema in Colombo suburbs recently for a higher price as a ‘favour’ in receipt of the benefits the former is enjoying through the BOI.

Clause 4 (iii) of the supplementary agreement stipulates three major conditions to be fulfilled by the investor for the overall investment of US $ 80 million to upgrade and modernize the existing steel plant in Athurugiriya to increase the production capacity to 250,000 Mts and to introduce an additional range of products including steel fabrication which shall contribute to the national economy with net foreign exchange saving of approximately US $ 125 million per year by 2015.

“On inspection carried out by the BOI on November 17, 2016 it was observed that the Enterprise was planning to commence commercial production of corrugated sheet rolling, structural steel fabrication and wire nail only by 2017, not even by 2015. However according to the Enterprise they have upgraded and installed new machinery and they have increased their annual production capacity to 260,000 Mts under the production range of – Hot rolled QT bars, Cold rolled bars, GI Pipes/ Galvanized Pipes, Square tubes, Round tubes and Welded mesh.

“As per the annual report for 2011, 2012, 2013, 2014 and 2015, the Enterprise has not compiled the required production capacity per year by 2015. In addition although the company’s net foreign exchange savings should have been US $ 125 million per year by 2015 as per the supplementary agreement, it is learnt the investor has failed to fulfil the net foreign exchange savings of US $ 125 million as per year by 2015 as well. Therefore BOI letters dated March 22, 2017 and June 15, 2017 to the Enterprise requesting to submit clarification on the quantum of ‘net foreign exchange savings’ for which company has agreed to submit on or before July 7, 2017,” sources claimed.

Responding, the Enterprise by letter dated July 6, 2017 addressed to Chairman BOI, had stated that the contribution of net foreign exchange savings amount of US $ 125 million per year by 2015 has been mistakenly inserted into the supplementary agreement dated June 3, 2011 by the BOI which amount has to be contributed by the entire steel industry in Sri Lanka. The letter states as thus, ‘We wish to bring to your attention that the said net foreign exchange saving of approximately US $ 125 million should be contributed from the entire steel industry in Sri Lanka but not only by the company in question. Hence our earnest requests to execute necessary amendments to rectify the mistake made by the BOI and give the investor a reasonable net foreign exchange saving with immediate effect. Otherwise such incorrect covenant will bring the Enterprise an irreparable and irremediable losses’.

“The investor had given an unsatisfactory clarification claiming that the BOI had made a mistake by including a condition in the agreement that there should be US$ 125 million net foreign exchange savings where as it should be borne by the entire steel industry in the country. How can they claim as such when the agreement was signed by both parties? Just because they have failed to fulfill the agreement conditions, they are now coming up with lame excuses putting the blame on to the BOI. From what is happening now at the BOI on the instruction of the Minister of Development Strategies and International Trade, there is a possibility for the BOI to amend this supplementary agreement in order to benefit the investor to which we are keeping an eye on to the issue,” sources claimed.

The sources further stated as to how Attorney General’s Department had wanted this matter settled amicably without instructing the investor to pay all the taxes he was enjoying since 2011 for violating the agreement. “Will the AG’s Department act in such a manner if any other party violates their agreements causing heavy losses to the country? Why is this only for this company? Isn’t it because a powerful minister in the present regime is behind this? The amicable solution is to cancel the agreement and instruct the investor to pay the taxes they were enjoying to the tune of Rs. 3 billion from which the government can give few relief to the poor masses. Why is the government trying to make the wealthy even more prosperous than giving relief to the masses?” sources added.

According to the sources, it was the former Economic Development Minister Basil Rohana Rajapaksa that accorded the investor the Strategic Development Project (SDP) status under the Strategic Development Project Act No. 14 of 2008 (as amended), although the investment was a mere US $ 80 million. “Under the Strategic Development Project Act investments over US $ 350 were given the SDP status but because of the alleged involvement the Rajapaksa family was having with this Enterprise, this company was granted the SDP status with all the tax exemptions. The Supplementary Agreement entered into in June 2011 was to upgrade the plant capacity and modernization the almost existing company and such a project cannot be accorded with the SDP status. Since the former regime is not in power now, it is up to the present government to take action against this company for violating the agreement although they have been enjoying tax holidays under the SDP. This is a colossal loss to the country. What made Strategic Development and International Trade Ministry to mount pressure on the former BOI Chief to ‘forgive’ the Enterprise for violating the agreement? Will the other BOI companies who violate their agreements too, get this same favour?” sources alleged.

The sources further said as to how the tax benefits had been granted to the company in question by the then Minister Basil Rajapaksa through an extraordinary gazette notification.

“A ten-year tax holiday period under Inland Revenue Act was granted, commencing from either the first year in which the project company makes taxable profit or two years from the date of commencement of the operations of the new mill by the project company whichever comes earlier. Thereafter, there will be a partial exemption granted equivalent to half of the applicable tax rate prevailing at that time for each year of assessment for a further period of five years immediately succeeding the last date of the ten-year tax holiday period. However, Economic Service Charge will be applicable at the rate of 0.25% as per the Economic Service Charge Act No. 13 of 2006,” sources claimed.

Further Value Added Tax (VAT) on the importation of project related capital goods and construction items also had been exempted during the project implementation period of five years with the approval of the Board commencing from the date of commencement of the expansion unit from the date the Memorandum of Understanding (MOU) entered into between the Enterprise and the BOI.  Port and Airport Development Levy (PAL) on the importation of project related capital goods and construction items were also exempted during the project implementation period of five years with the approval of the Board commencing from the date of MOU. Nation Building Tax on the importation of project related capital goods and construction items will be exempted during the said project implementation period of five years with the approval of the Board commencing from the date of MOU. Exemption from Customs Duty is applicable to importation of project related capital goods and construction items other than the items mentioned in the negative list. However items in the negative list will be considered if quantity of such goods are not available in the local market, as approved by the BOI during the project implementation period of five years commencing from the date of MOU and the importation of raw materials for the project is exempted from the Port and Airport Development Levy and if any Customs Import Duty for a period of eight years with the approval of the Board Commencing from six months prior to commencement of commercial operation of the new rolling mill or first date of imports effected for the new rolling mill, whichever falls later.

Meanwhile the Steel Manufacturers Association of Sri Lanka, by letter dated July 3, 2017 to the BOI, had made representations relating to the benefits granted to the Enterprise and had requested for a level playing field for the long term sustainable survival of the steel industry.

The letter further states as thus, ‘We as a respectable business house would like to request your good office to provide an even playing field encouraging fair competition in steel business in the country. In 2011, BOI has accorded SDP status to the Enterprise by gratis of the incumbent government of that time. Consequently this company has been preferentially favoured with levies and duties for raw material imports under the SDP status. Most of the rerolling units in the country are also importers of the similar raw materials producing the same quality and range of products of steel as this steel manufacturing company. As per the gazette notification, the Enterprise being a SDP unit is exempted from PAL, which is to the tune of 7.5% on imported billets. Additionally they are given VAT and NBT exemption for each consignment.

‘Further under Inland Revenue Act No. 10 of 2006, they also enjoy a 10-year income tax holiday and further five years of concessional tax regime under the SDP status. During the former regime, the government mandated all government and semi government projects as well as private developers associated with government initiatives to declare the investor as the registered steel supplier for all such projects placing them with undue and unfair advantage. These concessions have seriously damaged other manufacturing plants and rendered them uncompetitive. The benefits and concession amount to 9-10% places the Enterprise at an advantageous position with respect to other players creating a monopoly which is totally unfair’.

Meanwhile the sources further claimed as to how the former Chairman got this Rajapaksa front man’s tyre factory in Horana to increase the land price from Rs. 171 million to Rs. 210 million.

“Although the government does not consider the Government Valuer’s valuation if that does not benefit them as we have seen in the case of the Agriculture Ministry building in Rajagiriya where the government pays much higher rental than the government valuation amount, for the Horana land the government wanted to give away the 100 acre for a mere Rs. 171 million as per the government valuation report. But Jayasuriya insisted that the investor should pay Rs. 250 million but finally gave for Rs. 210 million which was Rs. 39 million more than the initial price. Although it was the BOI that has to provide the infrastructure facilities for the project land, the then Chairman did not agree to do so and got the investor to get it done and the agreement was signed accordingly. The Engineering and Technical Services Department of BOI after a survey estimated the cost to provide infrastructure facilities for this land was Rs. 325 million. As a result of not agreeing to provide the infrastructure facilities to this project the BOI was able to save Rs. 325 million. Had Lokuwithana paid the BOI price for the land which was Rs. 250 million, the BOI had to spend on providing infrastructure facilities,” sources claimed.

Meanwhile, for the questions posed to the BOI in this regard, Dilip Samarsinghe, Director, Media and Publicity, said that the BOI policy is not to discuss any issues taken up at the Board Meetings.

“I refere to your mail regarding the BOI Enterprise. In that connection, the BOI policy and normal practice is not to discuss any issue that has taken up, if at all, at the Board Meetings.”



7 Comments for “Corruption Continues Despite Yahapalanaya”

  1. Tax Payer 2

    This is how things work in the Country. The Minister is not an angel nor was Ravi nor the Arjuns nor the load of crooks in Parliament. Upul J the former Chairman resigned because he did not want to carry out the order from the Minister but the order went thro thereafter. So there it is. So much for Sri Lanka and it’s masses.

  2. Sangaralingham

    Leaders politicians administrators media gurus teachers religious personal guardians of the country police armed forces must set noble examples to citizens of the country honesty trust no corruption bribery civic responsibility with trust and faith ; are we dreaming will it happen.

  3. Corruption in in Sri Lanka emanated after the demise of Hon. Dudley Senanayake.
    It is in the Sinhala blood and genetical. Almost every politician thereafter made billions from scrap. It never can be eradicated as it is in the blood.

  4. len

    “Corruption Continues Despite Yahapalanaya” any one with common scenes expect otherwise if so deserves the end result. One thing fore sure Ex Minister Karu’s PR team has riped a page off Obama’s play book it went like this “I knew nothing only read it in the news paper this morning, Not even a smidgen of corruption IRS, but have to admit he never dumped on his wife Michelle.

    • Ranjith Sam

      We as tax payers are really disappointed with the power. They were given a mandate to clear the rotten and corrupt mistakes of the previous regime only to do the same in wolf’s clothing. Shame on the SL government.

  5. The level of corruption in this country is staggering, maybe a dictator who is from the armed forces,would be able to clean up the country,by putting the corrupt politicians behind bars.

  6. UD De Alwis


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