Rupee Might Have Crashed to Rs 250 – Cabraal
By Rajiesh Seetharam
Import restrictions were taken in the interest of the country as the need of the hour due to COVID-19, stated State Minister for Money, Capital Market and State Enterprise Reforms Ajith Nivard Cabraal, while addressing the University of Colombo MBA Alumini Association.
Responding to a question on recent European Union concerns expressed on Sri Lanka’s import restrictions, the State Minister replied, “If import restrictions weren’t imposed, the rupee would have depreciated to Rs 250 against the US dollar, which would have meant stopping imports anyway. We have formed a two-member committee which includes me and Industries Minister Wimal Weerawansa, to see how we can relax these measures.”
Cabraal said that an investment of US$ one billion is expected soon for the Colombo Port City. He stated that the government had recently approved the setting up of an US$ 300 million tire factory inside the Hambantota Port Industrial Zone that will spread across 120 acres of land and will occupy 30% of land earmarked for investment in the zone, which are positive signs for Sri Lanka.
Cabraal said that he aims to greatly increase trading activities at the Colombo Stock Exchange, with a vibrant debt market along with equity markets which targets 500 companies to be listed in it in the next five years.
“We want to see new listings in the CSE from BOI companies, Small and Medium Enterprises and startups. We expect to see total Market Capitalisation of the stock exchange being at least 75% of GDP. We want to maintain a stable exchange and interest rate so that the business community can plan for the next five years without interruptions.”
With a view to spread development all around the country 100,000 roads are to be developed, said Cabraal. “Under the ‘Water for All’ national plan, we will bring water facilities to the 58% of people who don’t have access to pipe-borne water. We also have a concrete plan to resolve the human - elephant conflict.” said Cabraal.
Secretary to the Treasury and Minister of Finance S. R. Attygalle said that the 2021 budget is an inclusive budget which includes development of rural tanks, rural roads and also techno parks.
“A majority of infrastructure projects would be done using local contractors and local funding. Even the projects carried out with funds from international institutions like the World Bank, Asian Development Bank, etc would be modelled in such a way that the projects would go to local contractors, thus money would be circulating within the country.” noted Attygalle.
When questioned regarding claims from private sector that tax exemptions are provided for dividends of foreign companies, whereas locals are being taxed on income as well as on dividend distribution, Attygalle explained the reasoning, “While appreciating the local business community, such incentives had to be offered to attract Foreign Direct Investments.”
Speaking on the same issue, Hayleys PLC Co-Chairman Dhammika Perera claimed that this might discourage local companies from declaring dividends.
“In 2015, the withholding tax on dividends was 10%. While the previous government increased it to 14% currently it is 18%, whereas foreigners were exempt. At least it should have been maintained at 14% for locals,” claimed Perera.
Regarding the Proposal to amend the Employees’ Provident Fund Act to expand the retirement age for both men and women up to 60 years, Perera said, “If the government is able to increase the number of jobs, then it is fine. If not, it will be an increase of expense to the company as by 55 a person gets a high salary, and the company has to pay the high salary for another five years.”
Speaking on the proposed insurance fund and COVID Insurance Scheme, where businesses and factories with more than 50 employees have to contribute 0.25% of their turnover, Hemas Holdings Group CEO Kasturi Wilson questioned the rationale behind the need for businesses to contribute to the fund, despite paying taxes and taking good care of its employees, even to the extent of paying salaries during the COVID-19 pandemic, without laying off staff.
Attygalle replied that it would be a separate welfare fund and not included in the consolidated fund. As many taxes have been reduced, like the corporate tax from 28% to 18%, businesses shouldn’t have an issue about contributing as it is on behalf of employees who have worked hard for the bottom line of the company, noted Attygalle. However he said waivers would be given to certain industries which suffered most during the pandemic.
Speaking on why attempts made by governments to bring undeclared money held by Sri Lankans abroad hasn’t been successful despite several tax amnesties offered since 1993, Expo Lanka Holdings Group CEO Hanif Yusoof stated that it could be due to a lack of trust.
“Earlier, during times of high interest rates it would have been attractive to keep money in Sri Lanka. The reason for holding back could be the fear of persecution in Sri Lanka, thus there should be a clear legislation that anyone bringing back money wouldn’t be persecuted.” Yusoof said.
Giving his views on the subject, Sri Lanka Standard Chartered CEO Bingumal Thewarathanthri said that despite legislations on a tax amnesty, inconsistent policies on tax and other issues doesn’t build confidence and could be main reason for not bringing back the money held abroad.
99X Technology CEO Mano Sekaram said that the unique digital Identity project which the government is embarking on, could be a game changer as it would pave the way for Sri Lanka to move towards a formal economy where all transactions are linked, and tax collection would be made more efficient.
With regards to the Capital Markets, John Keells Holdings Chairman Krishan Balendra said that one of the main issues is the lack of liquidity and the relatively small size of the market. He suggested that the government list at least 10-20% of State Owned Enterprises (SOEs).