19th May 2002, Volume 8, Issue 44

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BUSINESS

Industrialists highlight budget anomalies 

Industrialists have highlighted certain ‘anomalies’ in the 2002 budget and have urged the Ministry of Finance to rectify these matters. The main problems relate to the port and airport development levy, debit tax and value added tax (VAT).

The Industrial Association of Sri Lanka (IASL) has written to Finance Minister, K.N. Choksy, highlighting these issues raised by its members.

The first matter relates to the port and airport development levy. A levy of 1% has been introduced on the declared C&F value of all cargo imported into the island. It replaces the 1% stamp duty paid on letters of credit and commercial invoices presented to the director general of customs. A subsequent press notification issued by the treasury secretary under the heading ‘The Implementation of Budget 2002 Proposals’ has exempted the following imports from this levy:-

 The imports by any diplomatic mission or any other organisation within the provision of the Diplomatic Privileges Act No. 9 of 1996 will not be liable to this levy.

 Import of diamonds, gems, gold, jewellery and any electronic items or components imported for the purpose of re-export after processing.

“In addition to the above exemptions, we are of the view that the special concessionary rate of 0.05% (which was available under stamp duty) should be available for imports used by the export sector (including import of plant, machinery and fixtures) and for imports used for the sale of gods in any duty free shop so as to continue the incentive given to the sector,” the IASL stated. It added that this concession is essential for the export sector especially to the garment sector (which is today the largest employment generator) since 60%-70% of the FOB value of garments exported consists of imported materials. This sector is already struggling to survive due to the recession in the US and strong competition from other countries. It was pointed out that they have to face subsidised competition from overseas factories particularly in Vietnam and China.

The association said that since the port and development levy is already in force (effective from 1/5/02) immediate notification should be made with regard to the applicability of this concessionary rate and directions should also be given to the director general of customs. With regard to the debit tax, the association which is affiliated to the Ceylon Chamber of Commerce (CCC) emphasized the following matters:

 Although the debit tax is in force as from 1/5/02, no precise guidelines have still been issued to the relevant financial institutions covering the applicability, implementation and recovery procedures. IASL members have pointed out that this tax is a retrogressive tax that would increase transaction costs ultimately resulting in increased prices and inflation. This tax would also hamper banking services and would result in a cash economy with consequent concerns on security and convenience.

 Clarification is required on the applicability of the debit tax on inter account transfer (accounts belonging to same party) within the same bank, and the treatment of various GL account of banks and inter-bank transactions.

 Until the above-mentioned matters are reviewed and guidelines made available, the association has suggested that the implementation of debit tax be differed until 1/8/2002 or the debit tax be rescinded in toto.

With regard to the Value Added Tax (VAT), the IASL which has a membership of 76 medium to large scale industries stated, “In terms of the budget proposal 2002, the Goods and Services Tax (GST) has been replaced by VAT effective from 1/7/02. It has also been proposed to abolish the National Security Levy (NSL) and include this levy amount to the higher rate of VAT (20% rate). Since NSL was a special tax introduced to enable the government to fund some of its defence expenditure, our members need assurance that in the event of any escalation in defence expenditure, re-introduction of NSL would not be made in addition to the current VAT.”

The association added that under the NSL Act No. 52 of 1991 (as amended by Act No. 4 of 2001) in order to assist the manufacturing sector, a concessionary rate of 0.5% was levied as NSL on the import or manufacture of any plant, machinery or equipment excluding motor cars, motor coaches and lorries. These imports would now be liable for VAT at the higher rate of 20%. It is submitted that the concession available under NSL be continued and the aforesaid imports/manufactures be made liable to VAT at the lower rate of 10%.

According to the IASL, in addition, under the GST statute, exemption from GST was provided for import of or supply of a motor coach with seating capacity not less than 28 passenger seats used in public passenger transport. It noted that the same exemption was also provided for leasing facilities for such motor coaches. Under VAT, although leasing facilities for motor coaches (28 seaters or more) used for public passenger transport services remain exempt, the import and supply of such motor coaches are liable for VAT at 10% “Since leasing companies would not be in a position to claim the input VAT on purchase of such motor coaches such companies would be compelled to add the cost of VAT to the lease rentals which would make the leasing of such vehicles prohibitive,” the IASL said, calling for urgent action to rectify this anomaly.


Satellite mobile telephony services launched

MTN Networks recently announced the launch of satellite mobile telephony services - the latest pioneering extension to its state-of-the-art service portfolio.

The company will market the ground breaking Thuraya satellite mobile telephony service, available for the first time in Sri Lanka and the region under its newest power brand, DialogSat.

DialogSat brings with it the extensive coverage of the Thuraya satellite mobile telephony service. Mobile telephony services would now be available throughout the length and breadth of Sri Lanka and its territorial waters in addition to all areas covered within the Thuraya footprint which covers 99 countries across 3 continents (Europe, North Africa, Middle East and Central Asia).

DialogSat together with Thuraya have “truly made a breakthrough in Sri Lanka’s telecommunications industry,” commented CEO, Dialog, Dr. Hans Wijayasuriya, “We have succeeded in adding the affordability dimension to this critical telecommunications technology and have made it readily accessible to our Sri Lankan consumers.

“Our satellite phone call charges range from Rs. 50 a minute for a mobile to mobile call, to a maximum of Rs. 140 per minute for an overseas call. The handset would cost around Rs. 79,000 inclusive of satellite connection and all taxes, and has a GSM mode as well as built in GPS (Global Positioning System) as additional features. The handset weights only 220 grammes, and is comparable to a GSM handset in terms in size and appearance.”

Explaining the functionality of the company’s latest service, Manager, Network Operations and Lead Project Manager for the introduction of Thuraya services in Sri Lanka, Pradeep De Almeida, said, “Our handset can operate in both SAT as well as GSM modes. This means that when outside GSM coverage - whether it be in a remote part of Sri Lanka, or in the high seas, or in any other country within the Thuraya footprint - subscribers would have access to seamless telecommunications facilities. Calls made while in SAT mode will be more expensive than standard GSM calls. However when within GSM coverage, the phone would switch to GSM mode and the subscriber would enjoy normal Dialog GSM call rates. The system also provides SMS in SAT as well as GSM mode and data and fax transmission capability.”

DialogSat’s affordability and superior technology will make it attractive to a wide cross-section of telecommunications subscribers across Sri Lanka. The service will provide an umbrella of telecommunications coverage across the entirety of Sri Lanka enabling 100% contactability across the country for the first time.

Expanding further on the versatility and multiple applications of the system, General Manager, International Business, MTN, Anoja Obeyesekere, said “Satellite telephony will also enable several rural telecommunication applications in time to come. The satellite telephony service does not require the establishment of terrestrial infrastructure and that means that it could be a rapid solution to bridging the digital divide. Furthermore a subscriber will be able to determine as well as transmit his/her location to a high degree of accuracy using the standard GPS feature. This will be of critical importance for navigation as well as disaster recovery applications.”

DialogSat will change the way people, travellers, and even families keep in touch. Additionally, DialogSat’s services will be ideal for those working in remote industrial sites and marine operations, relief projects, disaster recovery sites, as well as those involved in regional and international transportation.

The Thuraya mobile satellite system is a one billion dollar project built by Boeing Satellite Systems, formerly Hughes Space and Communications International, Inc. (HSCI), at the cost of US$ one billion. Designed for a lifespan of 12 to 15 years, Thuraya’s satellite will maintain geosynchronous orbit at 44 degrees east. Thuraya-1 satellite was launched on October 21, 2000; on board a sea launch Zenit-3SL rocket from the equator in the middle of the Pacific. It was the heaviest commercial payload ever launched and the first commercial satellite to employ digital beam forming.

MTN Networks has spearheaded the industry in Sri Lanka over the past few years propelling it to a technology level on par with the developed world. The company operates Dialog GSM, comprising of over 200 base stations, international roaming facilities in over 100 countries and a subscriber base in excess of 300,000.

MTN Networks, an ISO 9001 certified company is a fully owned subsidiary of Telekom Malaysia Bhd and is the winner of the ‘Sri Lanka National Quality Award for Business Excellence’ in the large scale service category in 2001. The company is also the recipient of two consecutive GSM world awards in 2001 and 2002.


Problems faced by the textile industry and rectification measures 

Textile manufacture in Sri Lanka started with the setting up of Wellawatte Spinning & Weaving Mills in 1888. Then came Veyangoda, Pugoda, Thulheriya, Paragon, Cyntex, JB Textile Industries, Nagindas, Kandy Textile Mills, Hybro, and many factories run by the Department of Textile Industries.

Since then many medium and small-scale factories started, all enjoying the closed economy, and a sellers market. About 200 million metres/annum were produced by these factories at one time, feeding the domestic market, and saving a massive amount in foreign exchange to the country.

Things started to go wrong a few years back with the large-scale garment manufacture for export and many of these garment manufacturers siphoning part of the imported textiles (brought to the country without duties for re-export) to the local market.

This was sometimes a more profitable situation than garment manufacture and never brought under control, as it would have affected the genuine garment exporters as well. With more and more garment manufacturing plants opening up, the quantum of fabric seeping into the local market also proportionately increased.

With the maiden budget of the People’s Alliance in 1995, when the duty on textile imports was suddenly reduced from 50 % to 35%, just prior to the Sinhala & Hindu New Year, the textile traders imported fabric from India, Pakistan and China, rather than buying from the local textile mills as it was cheaper. The textile sales in Sri Lanka have always been seasonal and the major sales quantum takes place during Christmas and New Year.

Adverse effect

All the textile mills which built up large stocks for the new year were saddled with massive quantities of unsold fabric and hence liquidity problems. The duty was then brought down to zero in November 1997, with the sole intention of facilitating the garment manufacturing sector to develop and expand in order to generate high employment levels and foreign exchange earnings. However, this had a direct and extremely adverse effect on the domestic textile manufacturing industry. Sri Lanka must be the only textile manufacturing country in the world to have zero duty for textiles, in spite of the World Trade Organisation allowing  reasonable measures to safeguard local industries.

Three of the very large textile mills in the country at the time, Pugoda, Veyangoda and Kuruwita ,which were generating large profits up to 1994 went to a massive loss in 1996 and ultimately had to close down as they were unable to compete with cheap imports.

All three factories, which produced very good quality fabric for the domestic market, and which were on par with present day imports for domestic consumption, have now closed with thousands of workers thrown out of job.

To cushion the impact of duty removal, the then government took a decision to transfer the debt burden of textile factories to a fund termed Textile Debt Recovery Fund (TDRF). However this process took a very long time to complete, unlike in the case of duty removal that took place overnight and therefore was not sufficient to prevent the closure of most of the factories.

Even now the TDRF has not been fully implemented, and most banks have decided against granting of facilities to the domestic textile industry. For this the banks can’t be blamed, as it is difficult to show the banks the viability of textile manufacturing projects under the prevailing conditions.

Different areas

Most of us in Sri Lanka find it difficult to distinguish between the textile industry and the garment industry and sometimes even senior officers dealing with the subject are heard talking of garments and textiles as if both are one and the same.

Textile manufacture consists of yarn manufacture, weaving of the grey fabric, and processing (bleaching, dyeing, printing and finishing). Garment manufacture is the manufacture of garments from any material, textiles included. Some also feel that the domestic textile manufacturing industry should be there only to cater to the garment industry. This is definitely not so. These are two different areas, and should not be mixed up.

The domestic textile industry should be there to cater to the needs of the local population, and need not necessarily be for export or for garment manufacture for export. If a part of the domestic textile production can be used for garment manufacture for export it is all well and good.

One must also realise that it is just not possible to upgrade a domestic textile-manufacturing factory to that of a textile factory catering to the export garment industry. This is one very important factor that has to be kept in mind. A textile factory to cater to the garment industry - either spinning and weaving or dyeing, printing and finishing - will cost well over a billion (one thousand million) rupees. If one is thinking of textile manufacture to cater to the export oriented garment factories then it will have to be completely new ventures.

I do not think businessmen would invest that kind of money not knowing what the situation will be for the garment manufacturing industry in the future. There are over 120 countries manufacturing garments for export.

Garment manufacture is mainly concerned with stitching of textiles, and for this we get a price, an amount that has been steadily declining with many new countries starting garment manufacture, as garment manufacture is not a very complicated or technically advanced process, compared to textiles. The quality of garments produced in these countries has also been steadily improving. The prices have therefore come down considerably, while our costs have been rising steadily.

In addition to this, come 2005 and the end of the multifibre agreement, with China also getting into the mainstream of garment manufacture to the USA, having been accepted to the World Trade Organ- isation, things do not look that rosy for the garment industry in Sri Lanka. China not only has a very advanced textile manufacturing base, but also manufactures machinery for the garment industry. Further, it is hard to believe, with whatever trade agreements, that USA will simply allow imports to dominate its domestic market. There will definitely be instruments of trade policy that would come up to protect trade in future.

Backward integration

Many officials feel that backward integration of the garment industry is a pre-requisite for the garment industry to develop. They also think that the first step towards backward integration of the garment industry is the textile industry. It is well and good if modern textile factories capable of supplying to the garment industry are in operation, but whether they will ever be in a position to compete with countries like China in the future is another matter.

The textile industry and garment industry are separate industries though inter-related in as much as the manufacture of iron and manufacture of products made of iron are different. For example, Nylon and Rayon yarn are used in the manufacture of garments as well as car tyres.

No one seems to realise that even if we set up state-of-the-art (this has now become a catch phrase) textile manufacturing factories costing billions of rupees, we still will not be in a position to cater to the garment sector in Sri Lanka in appreciable quantities. The reason for this is that the variety of fabric and yarn used and finishes required for modern day garment manufacture changes frequently.

Now, getting back to the domestic textile manufacturing industry, at the moment it faces definite closure, with no duty on imports, release of large quantities of garments to the local market from the export oriented garment factories legally and illegally, taxes being levied for the imputs of the textile manufacturing industry as well as sales of the finished product. Imported fabric also, however, still comes into the country and to the domestic market via garment factories with no duties and taxes at all.

A level playing field is required if the domestic textile manufacturing industry is to survive. It has become a race with both legs tied up. From an employment generation of over 45,000 persons directly in 1994, the employment level has now dropped below 18,000 and continues to fall day by day, as factory after factory keep closing down. This trend can be brought to a halt and maybe even reversed if proper constructive action is taken immediately by the persons concerned, without any further delay.

There is absolutely no point in destroying one industry, thinking that another industry will survive by this, which might in fact not be the case. Only time will tell, and it will then be too late.

Main problem

Even for this Sinhala and Hindu New Year millions of metres of low/medium quality, low width  (36"-45") fabric has been imported from China, India and Pakistan for domestic consumption, which could have been easily manufactured here. The main problem in competing with these imports is the very low price at which they are imported due to subsidies and other incentives from those countries.

Actually, it is a case of dumping and the anti- dumping laws, as per World Trade Organisation (WTO) agreement should suffice, but it is an impossible task and not worth trying. (If a single case is taken,  Polyester/ Cotton 45" fabric is available in grey form in Sri Lanka at a lower price from China , than the cost of yarn needed to manufacture it .)

Now it has come to decision making time and the domestic textile manufacturers (at least the few who have had the guts to survive all the onslaughts, while factory after factory closed down due to bad political decisions of successive governments) to take stock of the present situation and request the authorities concerned to take a reasonable decision to implement requests made by the textile manufacturers in order for the balance textile factories to survive and maybe re-start factories that have already closed down.

In this process the factories can be categorised into three segments.

1. Those who still want to run their textile factories, with the help of a reasonable incentive package from the government, so that the factories can be run profitably, and the loans transferred to the TDRF can be paid back.

2. Those who would want to use the present infrastructure facilities available in their factories, (land, building, electricity, water, and boilers) and start a new, hopefully viable industry and thereby keep reasonable employment levels.

3. Those who would want to close down the existing factory and call it a day, as they have no hope whatsoever in industries in this country.

Categories one and two are the most important, as otherwise it is going to add many more young people to the list of unemployed, and this will pose another major problem for our country, not only in terms of employment but also in crime prevention.

Rectification measures

I suggest that the following measures be taken in order to help the domestic textile-manufacturing sector to develop and stay at viable levels.

(a) An incentive package to be given which could take the form of finance relief measures, and can be arrived at taking into account the plight of the domestic textile manufacturers as well as the difficult financial situation of the country at the present time.

(b) Implement the Tripartite Agreement fully.

(c) Make available low interest loans under a special scheme, for working capital requirements as well as purchase of new machinery for replacement and modernisation. ( Bangladesh is now giving  loans for development of their domestic industries at 7% effective April this year.)We must remember that if we are to be competitive, then our costs also have to be on par with other countries in the region.

(d) Zero rating of GST/VAT for all inputs and sales.

The authorities concerned should take a reasonable and extremely  quick decision with regard to the domestic textile manufacturers, as they are in this plight due to no fault of theirs.

- Sarath Gooneratne The writer is a honours graduate in textile economics & management from the University of Manchester UK, and a chartered textile technologist. He is also a former vice president of the Ceylon Textile Manufacturers Association.


Epic Lanka/Hei Tech tie-up

By Risidra Mendis

Epic Lanka (Pvt) Ltd, an ISO 9001-2000 certified company, specialising in design, development and marketing of end to end solutions in the secure payment transaction automation industry, has been appointed by Hei Tech Padu Berhard of Malaysia as their exclusive international business partner for Sri Lanka, Bangladesh and Maldive Islands. Hei Tech Padu, being the largest national Information and Communication Technology (ICT) Solutions provider in Malaysia, is responsible for computerising many large government departments and organisations in Malaysia.

“We’re proud to become the exclusive partner for Hei Tech Padu in Sri Lanka, Bangladesh and the Maldive Islands. This is a great achievement for us as Hei Tech will add enormous strength to our current diversification program. Hei Tech has many ultra superior state-of-the-art solutions and expertise that will offer tremendous cost benefit advantages to countries like ours,” Managing Director, Epic Lanka, Nayana Dehigama said.

Epic Lanka’s principles are based on building an excellent company, meeting the needs of customers, promoting team spirit, recognising the importance of each individual, focussing accountability, fostering open communication, strengthening international partnerships and living and working ethically.

“Our vision is to be a better company with better people while creating a better economy and better world through affordable state-of-the-art quality electronic and electronic commerce solutions,” Dehigama said. Epic Lanka also strives to be the No. 1 company in the region that enlightens its customers by timely delivery, total quality and defect free electronic commerce products and solutions. “Our aim is to be the most important international partner in the region through an improved and mutually benefiting business,” Dehigama said.

Epic Lanka is the market leader in supplying and servicing EDC/POS terminals with over 60% of the market share. The company has supplied and installed over 3500 EDC/POS terminals and their products and services offered are internet based e-commerce and secure payment automation, network payment controllers, banking and financial solutions, government sector computerised solutions, security printing solutions, system integration and bank branch automation products among others.

The company is equipped with adequate manpower and equipment to support and service all of Epic Lanka’s products and service installations in Sri Lanka and the region. The company will maintain a stock of back up units spares and consumables in order to offer an uninterrupted comprehensive and superior service to its clients. Epic Lanka is also geared to offer its customer support services 24 hours a day including mercantile and public holidays and to their regional customers through their business partners.

While being the international business partner for Verifone Inc, USA, Gemplus, France, SafeScrypt, India, Ingenico, Malaysia and Datastrip, Epic’s focus is strongly on its business area as a corporate policy. Manned by fully trained and experienced business leaders and engineers, Epic has an energetic and efficient team that dominates over 60% of secure payment automation in the Sri Lankan market.

Being the dominant ICT solutions provider in the government sector in Malaysia, Hei Tech operates a state-of-the-art call center in Kuala Lumpur that supports over 40 government departments and organisations. Presently, Hei Tech Padu expects to bring its world class ICT solutions to Sri Lanka via BOT/BOO based projects.

The solutions and expertise offered by Hei Tech Padu include government sector computerisation, applications, banking and financial applications, finance and asset management, unit trust management, education and university student management, human resource management, business and commercial applications and networking and systems integration, amongst many others.

 

 

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