I read, with disappointment, Mr T.S.Perera’s critique on Sunday, 26th December, 2010, of my article that was published on Sunday 12th December in the Business section of the Sunday Times.
I have never resented criticism of my writings. Mr Perera’s article has caused me no offence. However I was deeply astonished that anyone could so utterly fail to grasp the meaning and purpose of my article especially because it was written in simple, unambiguous English.
For the benefit of Mr Perera, a Chartered Accountant, I shall summarise the essence and significance of what I wrote , in a few simple sentences.
1. The Government has erred in amending in the latest Budget the Deemed Dividend Tax (DDT) that it introduced in 2006.
2.The main purpose of that tax was to persuade Boards of Directors to increase their dividends to a reasonable level. It was not intended to be a revenue raising measure except by the collection of more Dividend Tax.
3.It worked – dividends increased and the share market was given a boost while shareholders got a squarer deal.
4.The increased share activity was good for the economy.
5. In order to avoid paying DDT all that a company had to do was to pay a reasonable dividend.
6. Paying a reasonable dividend could never prevent a company with a good reputation from expanding as much as it thought necessary.
7. If it lacked the funds to do it, the company could raise funds by bank loans, the issue of Debentures, or a Rights Issue.
8. A number of companies (listed in a table in the article) had paid reasonable dividends while expanding to the extent they desired. Those companies included John Keells and HNB.
9.The DDT is an excellent example of that rarity – a tax that encourages and enables development. It benefits the shareholder and the share market without harming anybody because it can be avoided by merely behaving ethically. (The Code of Ethics of the Ceylon Chamber of Commerce has urged its members to pay reasonable dividends ever since 1982).
That Mr Perera has totally misunderstood the message of the article is clear from his statement that “The writer’s spotlight on JKH,VPEL,JNS and HNB is, in my opinion, in poor taste”. He has failed to grasp that listing out those companies was a compliment to them!
This sort of obtuseness is the misfortune of specialists who fail to see the wood for the trees. A little knowledge (in this case of tax) can be a dangerous thing.
Charitha P de Silva,
Colombo. |
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