Governance issues are global not country specific, says PB
Some surveys in multifaceted variables that affect broad governance are reflections that governance issues are global and no country is free from such concerns. What is important is to manage them well and not to be in the worst lot, according to Treasury Secretary Dr. P.B. Jayasundera.
“We aren’t in the worst lot or in the bad lot, but in the improving lot.”
Turning attention to some popular topic among certain critics with regards to emerging countries and nations who have been affected by terrorism, such as Sri Lanka, he said, “These somewhat globalized concerns deal with a wide range of governance issues, which we have managed to addressed well. The World Rule of Law Index, Global Peace Index, Economic Freedom Index, Ease of Doing Business Index and Global Competitiveness Index, all of which are dealing with diverse facets of governance, having computed by reputed international organizations, have placed Sri Lanka well with regard to the entire Asia and on top in South Asia.”
A section of the audience at the meeting.
Delivering the keynote at the Capital Market Conference on “Takeoff to a High Altitude – The Transformation of the Economic Landscape in Sri Lanka” held in Colombo and organized by the Colombo Stock Exchange and the Securities and Exchange Commission on Thursday, he articulated the underlying national vision for economic advancement in the country. “Sri Lanka is among the top 20 leading service locations in the world in the delivery of IT/BPO and other knowledge services, having advanced to 16th place in the 2014 A.T. Kearney Global Services Locations Index while presently commanding the second highest number of Chartered Account students in the world only next to United Kingdom. With the high rate of enrollment for medicine, engineering, commerce, law, nursing, teaching and technical fields, the country is well positioned to attract professional services and skilled and technology based industries,” Dr. Jayasundera added.
He added that in the legal sphere – reducing laws delays, setting up dedicated courts to handle commercial disputes and expedite the early dispensation of cases has been prioritized by the Legal and Judicial Reform Committee headed by the Chief Justice.” It is encouraging to note that introduction of technology to Courthouses, promoting Court Assisted Mediation, setting up dedicated courts to deal with taxation and revenue disputes and revision of Superior Court Rules are already in progress to reduce delays, among other reform initiatives that are being implemented,” he said.
He added that the World Rule of Law Index, Global Peace Index, Economic Freedom Index, Ease of Doing Business Index and Global Competitive Index all of which deal with different facets in governance have placed Sri Lanka on top of South Asia.
Governance
“I dealt with these concerns not to argue that the country has perfect governance but to highlight the fact that it is certainly not among the worst lot or even the bad but in the promising lot among emerging global economies, as far as governance is concerned. I also covered these aspects to show how seriously many facets including governance have been included into the overall reform process by the Government towards improving the country ranking.”
Speaking on creating a strong National Budget and consolidating the macro economy that will fuel upper middle income economy expansion he said it requires having to raise Government revenue efforts beyond 16 per cent of GDP, which in turn demands a buoyant tax structure and high dividend from state enterprises. The tax system created through the 2010 Budget and subsequent changes are reasonably sound in terms of the rate structure, capital market development and investment promotion.
Big numbers
The Colombo Stock Market has just crossed Rs. 3 Trillion Market capitalization. “It is almost 40 per cent of our GDP. In 2005, it was just 20 per cent and in 2009, the year in which the global economy entered a recession following the collapse of US and European financial markets and the country got liberated from LTTE terrorism, it was 22 per cent. Fiscal incentives have been provided for Unit Trusts, Stock Brokers, listing of debt and equities and even market participants. Capital gains are tax-free. Foreign transactions are facilitated within a liberal exchange and payment system,” Dr. Jayasundera said dishing out statistics.
Setting the tone for capital market development in the country, he said that a stock market should not facilitate speculative transactions, manipulations or frauds but instead promote development through investor confidence and this is the policy direction in which the Government is implementing its reforms.
“Short-term concerns expressed by few affected parties and certain capital market experts on several legislations, which are meant to bring about medium to long-term benefits to all, have proved to be invalid. The case in point is the underperforming assts legislation as well as regulations on terminal handling charges on exports and imports. No investor was affected and left the country. Those assets have been put into best use and have helped the private sector better. Similarly markets have worked well for exporters and importers after the removal of terminal handling charges. No shipping line left the country. To the contrary, the country is better positioned with these legislations.”
The same will be true in the case of the proposed Land Alienation Restrictions Bill, since it recognizes a transparent arrangement for long term leases up to 99 years subject to a modest lease tax of 7.5 per cent to 15 per cent as against 100 per cent transfer tax that was payable by foreigners to acquire outright ownership of land, which is not permitted under the new law. It will seal loopholes primarily hurting those who escaped from having to pay the 100 per cent transfer tax-under the veil of incorporation of a Company, he said.
Land law intact
“The new law recognizes exempt categories and in the interest of companies – there are inbuilt flexibilities and safeguards, wider in the case of companies listed in the Stock Exchange.” The proposed Act provides for transactions involving condominium parcels above 4th floor to be exempt, he said adding that Strategic Development Projects are also exempted among others. “What is important to note is that the proposed law will become applicable to a company only if it proceeds to purchase a land on an outright transfer at a time majority ownership is in the hands of foreigners. Plantation companies which are listed in Colombo Stock Exchange work on land leases and they are already subject to share ownership restrictions. However, any company can proceed on a long term lease up to 99 years with no restriction or impediment. The safeguard mechanism that has been built in to the proposed Act is expected to be facilitated primarily by the relevant Company Secretary and the Registrar of Lands. The Registrar of Companies, SEC and CSE should facilitate compliance suitably, for listed companies to comply as part of corporate responsibility. We need to acknowledge that land is scarce, in particular-prime land and it is an inherent responsibility of the Government to formulate policy in the wider public interest.”
Capital Market players all over the world know that the presence of insider trading, market manipulations, undisclosed conflict of interests, non-compliance with regulatory requirements, etc. means trouble ahead and regulatory interventions are a must in the public interest Dr. Jayasundere said, adding that his work not only involves professional competencies but also ethically sound best practices.
“The topics of asset markets have attracted global attention in recent times with asset bubbles in well established markets that have compelled everyone to take note of underlying risk management challenges. Understanding this is difficult when the ‘going is good’ since the tendency is to forget everything and feel good, but when the ‘going is bad’, everything becomes amazingly hard, he said, adding that one mustn’t permit good times of today, to be the sad thoughts of tomorrow.
“Please remember that we have deliberately kept capital gains tax free, not to accommodate speculative gains but to promote long term gains in business development in this country.”