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The government
appears to be in danger of losing the war against the cost of living
while winning the peace battle. There is growing concern, among
the public as well as those influential sections of the business
community who are backing and promoting the peace effort, that popular
dissatisfaction with the rising cost of living could jeopardise
the gains made at the negotiating table which, it is hoped, could
pave the way for a durable peace. Whatever solution is worked out
with the help of the Norwegian and other foreign backers of the
peace process finally must be approved by the main opposition parties
and the electorate. The public would first want to be able to make
ends meet and make a decent living be fore worrying about what to
them would be abstract concepts of power sharing. The government
should pay more attention to reducing the cost of living or at least
to reining in inflation. The price of gas has gone up and telephone
calls are also likely to cost more this year. With the price of
oil on the rise it is only a matter of time before the prices of
other essentials, particularly transport and electricity, are pushed
up as well. If the government is unable to keep the lid on inflation
it would find it that much more difficult to get the required support
of the "south" or the majority Sinhalese electorate for
the peace effort and the ultimate solution. The solution in all
probability would devolve more power than has been contemplated
ever before, and therefore could be unpalatable to the Sinhalese
electorate and those opposition parties, namely the People's Alliance
and the Janatha Vimukthi Peramuna, which rely on such a vote base
to come to power. The pro-peace business lobby fears that the JVP,
which is strongly opposed to the present peace effort, could capitalise
on public discontent with the rising cost of living, and use it
to stir up popular opinion against a peace deal. Compounding the problem is that Industries Minister G.L. Peiris and Economic Reforms Minister Milinda Moragoda, are so preoccupied with the talks with the Tamil Tigers, and in other connected issues such as resettlement of refugees and rehabilitation, that they are unable to pay enough attention to vital and sensitive economic issues which could turn out to be the government's "Achilles' heel". These issues are the rising living costs and the effort to revive the economy and put the economic fundamentals back into some respectable shape. Perhaps what is required is a separate ministry or minister to handle the peace effort. We are not for a moment suggesting that the government enlarge an already obscenely-bloated Cabinet but to reshuffle the responsibilities of certain ministers so that the work required to reform and revive the economy is not neglected by the focus on the peace effort. The two ministers concerned are constantly travelling abroad, as they rightfully should. But this inevitably results in some neglect of their work on the economic front, neglect this country can ill afford. As the Central Bank itself has pointed out, although the economy is on the mend, the recovery depends on many things being done and done right such as going ahead with unpopular reforms and the speed of those reforms. By N.
Siriranjan, Assistant Superintendent of Customs Systems
of valuation Though many Customs administrations around the world adopted this system, major players in the international trade such as the United States, Canada, New Zealand and Australia never adopted this system. In this context, a new system of valuation dawned in the mid-1970s as Article VII of the General Agreement on Tariff and Trade (GATT). The agreement on implementation of Article VII was adopted in 1979 and entered into force on 1 January 1981. This system of valuation was known as GATT Valuation Agreement. Later, when World Trade Organization (WTO) succeeded the GATT, this valuation system too got a new name - 'WTO Valuation Agreement'. BDV system The WTO Valuation
Agreement has been introduced in Sri Lanka from this month. The
required amendments have been effected to the Customs Ordinance
in this regard. The required steps such as publication of relevant
regulations, changes in Customs procedures and structure and training
of staff, importers, and clearing agents are being undertaken in
order to ensure smooth implementation of the new valuation system.
Introduction of this valuation system is a much-awaited move by
the business community and the World Trade Organization itself,
as there is a delay in introducing the Agreement in the country. WTO Valuation
1. Transaction
value of imported goods 2. Transaction
value of identical goods 3. Transaction
value of similar goods 4. Deductive
method 5. Computed
method As this method
is based on the producer's cost price, it depends on elements available
in the country of production. Consequently, this method can only
be applied if the producer is prepared to provide data on the cost
of his production. Even if the producer agrees to furnish the information,
it will be virtually impossible for the Customs to check that information.
Therefore, application of this method may be limited in practice. 6. Fallback
method or Reasonable Means Method The first five
valuation methods given above will generally provide a basis for
determining the Customs value. However, there may be cases which
do not fully meet the requirements of those methods. For example,
the transaction is one of hiring; no identical or similar goods
are imported; the goods are not resold in the country of importation;
the manufacturer is unknown or refuses to divulge cost data. In
such cases, the imported value has to be determined under this method.
In practice the value under this method would be determined using
the principles of methods 1 to 5 subject to reasonable flexibility. What is the
purpose of having these six different methods? Can one use any of
these methods as per his choice? No. These methods have to be used
in the given order. Sometimes it is not possible to arrive at the
Customs value by applying the first method. In this instance one
of the five alternative methods should be applied in the given sequence.
For example, if the imported goods are not purchased and received
as a gift, the first method, the transaction value of imported goods
cannot be used, as there is no transaction value for the goods imported.
In this instance it is necessary to move to the second method and
if there are no identical goods available for the imported goods,
the third method should be used and so on. However, there is an
exceptional clause in the Agreement giving the option for the importer
to request that method 5 be applied before method 4. Nevertheless,
this exception will not be applied in our country as Sri Lanka opted
not to incorporate this provision into the amendment made to the
Customs Ordinance. New system? The second
reason is the deficiencies of the BDV system of valuation, which
is often criticized as being incompatible with business practices.
This is because, the normal price used in the BDV method is a notional
concept and sometimes differs from the actual price paid or payable
on importation of goods. For example, if an importer imports an
item on a special price, it will be rejected and he has to pay Customs
duty and other levies based on the normal price of the item. This
poses an uncertainty in the trade. The other reason
is that the time of valuation for the BDV is the time when the Customs
duty becomes payable - i.e. the time in which the declaration is
made to the Customs on arrival of goods to Sri Lanka. There is a
gap between the time when Customs duty becomes payable and the time
when the actual sale for the importation of the goods takes place.
Naturally there is a possibility of a change in price during this
time gap and the importer may be asked to pay Customs Duty and other
levies based on the price prevailing at the time of declaration.
In this situation too, the importer faces the uncertainty of paying
Customs duty and other levies based on a price different from the
price actually paid or payable for the importation of the goods.
Hence, under this system the importers are not in a position to estimate the correct amount of import duties and plan the business accordingly. The WTO Valuation Agreement closely corresponds to actual commercial realities and makes the Customs administration fully integrated to the economic life of the country and the world. Nevertheless, there is a possibility of unscrupulous traders misusing the provisions incorporated to ensure the commercial realities and pay lower state taxes. New Companies Act - in brief By Rajika
Chelvaratnam Recommendations
for reforming the present Act were made by David Goddard, a practitioner
from New Zealand who came to Sri Lanka on a World Bank funded project
to modernise the law. The aim was to bring Sri Lankan company laws
on par with the changes taking place in the world scenario. A lot of contributions
have been made by the corporate sector, the Ceylon Chamber of Commerce,
Institute of Chartered Accountants and other institutions to the
new Act, which is in keeping with global developments. "Based
on this the case law will improve. Unfortunately the case law in
this country does not contribute to the development of the law,"
said Dr. Harsha Cabraal, corporate lawyer and member of the Advisory
Commission of company law. The future "Though
a lot of changes were made to the English Act in 1985, 1989 and
1996 none of these were incorporated into our Act which is totally
archaic," said Dr. Cabraal. The new Act moves away from certain
English principles and is modelled on the New Zealand Act, which
in turn is based on the Canadian model. "The Canadian
model has been a guideline for most of the cases now ... and has
been the yardstick for company law reform in many jurisdictions,"
said Dr. Cabraal. The major change in the new Act is that it will
be a lot more flexible than the present rigid system providing much
more freedom for companies to be incorporated and to expand. The Ultra
Vires Doctrine The new Act
will do away with the ultra vires (beyond one's power) doctrine.
Under the new Act, each company ought to have a memorandum and Articles
of Association. The new Act has done away with the necessity for
the memorandum, which sets out what the company's objects are. This
gives the company a lot more flexibility in its business. According
to Dr. Cabraal if a company is involved in the business of importing
cars and that is not going well then it cannot resort to hiring
cars because it's bound by the memorandum. This rigidity is done
away with in the new Act, where it is a comparatively simple matter
of amending the articles of the company, which offers the business
a lot of flexibility. Setting
up companies Solvency
maintenance With the solvency
test a whole lot of restrictions have been introduced as to how
to maintain the solvency test and what sort of guidelines ought
to be followed in carrying out the test. Minority
buyout right Major transactions "Presently,
the Directors can do anything and get away and the shareholders
get to know about the transaction long after the event ... they
can siphon off funds, they can strip assets," said Dr. Cabraal. Therefore by
listing out what constitutes major transactions and ensuring the
consent of shareholders for anything to do with these transactions
the activities of the management will be restricted. Directors'
duties "So being
a director becomes a greatly responsible and heavy task... and the
role of the director is made very serious in the present context,"
said Dr. Cabraal. Derivative
action The rights
of the minority shareholders' are made stronger through this provision
as the provisions in relation to oppression and mismanagement in
the present Act will also be carried on into the new Act. Disputes
Board Single shareholder Auditors
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