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Chamber seeks charter on taxpayers' rights

The suggestion was made in a series of proposals on tax and tax administration for this year's budget put forward to Finance Minister K. N. Choksy. The Inland Revenue Department should adhere to an agreed procedure before seizing the assets of a taxpayer, it suggested.

The chamber also wants the government to set up a forum where all revenue issues could be discussed between the revenue authorities, practitioners such as members of the tax faculty of the Institute of Chartered Accountants, and professional institutes together with the private sector.

It called for the removal of the temporary 20 percent surcharge on income tax from April 1 and the recognition of the group taxation concept to help companies to exploit synergies within a group. The government should gradually move towards the "group taxation concept" to help companies make better use of the synergies available within a group of subsidiaries, it said.

It should also remove the 15 percent dividend tax to allow the free flow of dividends between a subsidiary and its holding company and allow groups of companies to submit a single tax return including group profits. The chamber wants the government to consider a phased reduction in corporate tax to eventually achieve a rate of 15 percent.

Another proposal was for the government to grant qualifying relief payment to any equity capital invested in selected thrust industries including agriculture, tourism, construction, information technology and industry clusters recognised under the Competitiveness Project, infrastructure development such as power, ports and highways, and export of any goods and services. A precondition for such relief should be that the investment leads to new capital formation.

The chamber has also called for relief for repatriation of income on offshore equity investments. Existing laws do not encourage companies which invest abroad to repatriate dividends since such returns are charged at the normal rate of corporate tax of 35 percent. Such earnings are actually tax-free in the source country.

The government should exempt foreign dividends from income tax for a limited period and change the law to provide for a foreign tax credit mechanism, it said.

It has proposed tax and other fiscal incentives to all non-oil based, environmentally friendly power projects, irrespective of cost. Concessions are now given only to projects where investment exceeds Rs. 500 million. The government should increase the income tax threshold to Rs. 300,000 a year and index personal tax allowances and tax bands applicable to individual taxpayers to the movement of the inflation index, it said.

Use local experts for northeast rehab 

"It was the general consensus at the meeting and not Mr. John Cooney's (ADB representative in Colombo) view alone that this road trace was not the best possible one," said CCI President Surath Wickremasinghe, referring to last week's report in The Sunday Times Business that referred to comments made by the ADB on this issue.

The meeting was held to discuss the construction industry, problems and its funding requirements. Wickremasinghe said the chamber will support the expansion of the Colombo airport, the feasibility study of the Hambantota sea port and the design and construction of coal power plants at Norochcholai, Trincomalee and Hambantota.

Referring to the northeast rehabilitation programme, he urged funding agencies and donor countries to allow Sri Lankan consultants and contractors to handle the sensitive planning and implementation of the projects. "We have to take into account the cultural and historical factors. Foreign consultants and contractors may not be aware of these requirements and the scale of development. For example we must not have a Singapore model in Jaffna," he said.

RRI to focus on end-user

"We need to strike a balance between strategic research and applied research," said Guneratne who quit Kegalle Plantations where he was chief executive officer to join the RRI Board.

It was also important to develop appropriate extension and advisory services, especially for smallholders who account for 60 percent of production, he said in an interview.

Among his priorities would be to increase yields and reduce production costs, Guneratne said.

"We have to develop new clones as fast as possible," he said. Traditionally it takes 15 years to develop new clones. New methods can reduce it to five years.

"Sri Lanka is a price taker," he said. "To be viable we must reduce our production costs."

Sri Lankan latex crepe, although of good quality, is not being marketed "aggressively enough," Guneratne said. Latex crepe is used in pharmaceutical products.

Much of the rubber processing machinery used today is outdated and consumes too much time and energy, Guneratne said.

There has been a substantial drop in hectarage and production, he said.

The island's rubber extent has fallen to 158,000 hectares in 2000 from 263,000 hectares in 1970 while national production has fallen to 87 million kg (87,000 tonnes) from 160 million kg over the same period.

This was mainly because smallholders were moving away from rubber because of poor prices.

"A lot of smallholders are not tapping their trees, so that has reduced the extent," Guneratne said. "If that extent can be brought back to tapping and we can make rubber profitable to smallholders, the national yield can be improved."

He recalled how in the mid-1990s when latex crepe prices went up to around Rs. 90 a kilo, yields too increased.

Rubber prices have been low for the last two years mainly because of the South East Asian economic crisis, unloading of buffer stocks by big producers in that region, and the global economic downturn which has hit demand for rubber.

"Sri Lanka is a very small player in the rubber market," Guneratne said. "We supply less than 1.5 percent of world natural rubber output."

Also, large extents of high yielding rubber land had been acquired from regional plantations companies (RPCs) by the state - some 1,300 hectares - and not used.

Productivity was also low with the national yield at 850 kg per hectare a year compared with India's 1,500 kg. The yields on estates run by RPCs is 900-1,000 kg but is much lower among smallholders.

SL Rubber Cluster mulls free imports, privatising state firms

These draft proposals were among several initiatives unveiled by a foreign strategy specialist engaged by The Competitiveness Initiative, a USAID project, at the first meeting of the state-appointed Task Force to develop the rubber sector last week.

The strategy specialist, Terry Mohoruk, said the Rubber Cluster was also proposing changes in archaic labour laws to allow more flexible use of labour and measures to ensure easier and cheaper bank credit for small and medium-sized industries.

He also told the meeting there was a need to set up a dedicated outfit, called the Society of Rubber Industry, to serve the interests of all sectors of the industry, as well as for one policy planning body combining all concerned ministries. Right now, three or four different ministries handle issues concerning the rubber industry, giving conflicting signals.

The rubber sector Task Force, headed by W.T. Ellawala, who is also chairman of the Colombo Rubber Traders' Association, is under the Ministry of Enterprise Development, Industrial Policy and Investment Promotion. Key officials from all sectors of the industry - plantations, traders, manufacturers and the bureaucracy - are represented on the Task Force which has to come up with a report to government on measures to develop the industry, which has been identified as a "thrust industry".

Ellawala said the Rubber Cluster's initiative comes in the backdrop of falling rubber production mainly because smallholders, who account for 60-70 percent of output, are abandoning their plots owing to poor prices. Annual production of natural rubber has halved in the last 25 years to 87,000 metric tonnes.

But the use of the local output by domestic industries has increased steadily and now accounts for up to 60 percent of rubber production.

"Without selling 87,000 tonnes of rubber a year as a commodity - which accounts for just over one percent of world natural rubber output - we must come up with ways to use it to manufacture more products. We need to improve the quality of field latex, other raw materials, chemical inputs, and research and development," Ellawala said.

Mohoruk said the Rubber Cluster has based its strategy on focusing on expanding and modernising rubber products industries, going in for more value-added products, and aggressive marketing.

The government may have to give concessions to banks or act as guarantor to help the industry get credit at low rates of interest, which was now difficult for small and medium-scale industries.

There was a shortage of high quality professionals trained in rubber and latex technology and competent managers, he said, adding that there should be one organisation to oversee the development of human resources with the participation of the industry.

Giving an indication of the potential of manufacturing, Mohoruk said exports of raw rubber earned on average $700 a tonne while that of rubber products earned an average of $3,300 a tonne.

He suggested a cap on production of ribbed smoked sheet (RSS), used in tyres, and a focus on developing different value-added products from field latex which would effectively be treated as a polymer.

The quality of field latex needs to be improved to ensure consistency in the raw material which was required for high-end applications, he said.

He suggested a 7-10 year plan to improve yields on rubber estates and to generate more field latex. Ageing rubber trees should be uprooted and replaced with high yielding clones.

The target is to more than double the yield to 1,600 kg per hectare a year, from 700 kg now, and achieve an output of 150,000 tonnes of latex in ten years, Mohoruk said.

To make the project work, smallholders, now working as a cottage industry, would have to be organised into "regional societies" on more commercial lines, to work with the plantation firms and manufacturers, he said.

The government would have to subsidise lost revenue for smallholders and regional plantation companies while replanting was going on, he said. Rubber trees take six or seven years to become productive.

A wood working industry could be developed from rubber trees when harvested, he said.

N. G. Wickremeratne, managing director of Dipped Products Ltd, among the top five rubber glove makers in the world, told the meeting that two crucial issues facing the industry were the falling rubber supply and poor labour productivity.

He said the domestic industry had already achieved some significant gains since 60 percent of local rubber produced was converted into finished products and some manufacturers were at the top end of the international market in their sector.

Stock brokers hire staff, prepare for market rally

"We expect the market to stabilise to reflect corporate earnings. December accounts are not expected to show good results and could reflect negatively on the market," said Radhika Jayasundera, assistant vice president of research at DFCC Stockbrokers. Certain stocks, such as some blue chips, were still quite expensive, she said. The market had soared after the general election on unrealistic expectations, she said. "It is too early to expect a lot to happen," she added. "You can't expect miracles overnight."

Dushyanth Wijayasingha, head of research at Asia Securities, said the market had slumped because expectations of urgent policy implementation had failed to materialise. But incentives in the budget and a more durable truce would help to support the market, he added. "The market is looking for a very clear-cut policy agenda, an action plan, which we think would come in the budget."

Jayasundera of DFCC Stockbrokers said the truce was a "very positive" development but that "concrete steps" on the peace initiative would be required to boost confidence. Some stock broking firms such as DFCC Stockbrokers have begun hiring new recruits. "Once things fall into place, you need to be ready," she said.

JKH to invest in tea export arm

"Our aim is to be a leading exporter of value-added teas and add strength to John Keells Holdings," he said in an interview. The John Keells group, although having extensive plantation interests and an established tea brokering arm, plays a very small role in exports, he said.

"The idea is to get into branding, locally and internationally," said de Zoysa, the former managing director of Unilever Ceylon's Tea Division. The company plans to unveil a new brand within the next few months and will produce value-added products such as packeted tea and tea bags. "We will follow a path of establishing a brand and delivering a quality product," de Zoysa said. It would initially source tea locally for blending but later will import teas, subject to prevailing regulations and the requirements of its markets.