Tuesday, November 24, 2015

Secrets of success of the 2015 November Budget

In my considered opinion, the real jonah in the pack is the question of whether the Revenue Estimates and Assumptions thereon will pan out. As only time will tell, and there are so many what ifs that it is hard to predict. I cannot see this happen unless the economy expands and I don’t see anything in the budget that will encourage expansion on productive areas.

We must be cognizant of the fact that there will be a change in Global Interest Rates, that put pressure on the Rupee, if there is money outflows! We also must know of the implications of exchange devaluation, which is most likely to average in the Rs150 to US$ in 2016, and make all assumptions there on.

It is advisable NOT to make any further reductions in the price of fuel, even if the world market falls to US$20, but to tie SL into a forward exchange contract as forward as practical at that rate to guarantee a foreign exchange saving even if prices rise. This can save up to 25% of the import bill, so is a significant point that is not considered, but which can save the Govt.’s bacon!

Then there is the HOPE that there will be a drastic FALL in the import of vehicles, which will make a significant impact on foreign exchange outflows which will help to reduce the exchange rate pressure that will arise upon the increase in Global interest rate rises.

There is a huge shortage of skilled labor to increase both productivity and productions of Industry. It is NOT clear from the new education policies if that will be solved in the medium term, and I suspect NOT at the moment. So it is imperative upon the Govt. to review State Employment, with a view of NOT recruiting for a period of years, so that the private sector can absorb the new entrants into the labor market, together with skills development programs, in a public private partnership to ensure the workforce has the skills needed.

Another important point not mentioned is that the Govt. will lose Billions in NOT receiving duties on vehicles NOT imported! Amounting to Rs30B per annum. Increasing the rates of duties WILL NOT mean there will be a surge in car imports as the slowing economy will have an impact on leasing deals where NON PERFORMING leases will rise to such a large extent banks will HAVE to write off many loans!

This will flood the market with second hand cars that cannot be sold but at a loss!  This is a time bomb waiting to happen as the blame MUST be on banks that lent 100% on value of cars as collateral and NOT assisted industry in expansion by giving concessionary loans that would NOT result in default!
Another area is the glaring omission of NOT introducing a unique ID number for all receipts and payments over Rs100K so that those not complying with the reporting of income above 2.5M a year, will be caught. This will without much difficulty reign in a minimum 100,000 new tax payers, who currently don’t pay any tax, with many in the provinces, who are either car dealers or hardware merchants who have increased their wealth thousand fold as they have NOT been paying any tax. In my proposal they could easily have been identified and brought into the TAX FOLD! This would yield at least Rs100B, enabling the PM to go to the 40:60 goals, which this budget fails to do.

Similarly, completely computerizing the customs importing mechanism where there will be NO face to face with ANY customs officials will prevent corruption on imports which is still rampant. All products fall into a code, scanners will check if the products imported conform to the code, and duty will be assessed on the CODE. Any miscoding errors will be penalized so hard, that no one will attempt this and with NO customs officials to officiate in this will raise another close on Rs50B that currently leaks into the hands of the unscrupulous.

There was very little talk on immediately upgrading public transport, where for the MEGAPOLIS MUST move to LNG or electric buses without delay, to reduce the pollution, along with the banning of three wheelers to only electric ones, as their pollution levels are unacceptable. There was really nothing on it, and that is a tragic failure of the budget along with the little emphasis on RAILWAY structural improvements, to get as much passenger and goods traffic into the rail.

I am willing to give the Finance Minister till next year to sort this out. The proposed entry charge to Colombo is long overdue, and will prevent too many vehicles coming in, if a minimum of 4 are permitted without a charge. However before next year’s budget concrete steps MUST be taken to implement transport improvements to speed the movement of people from the outskirts into Colombo.

I will also recommend that the move to Capital City is neither here nor there where land prices will be Rs10M a perch. The MOST important will be the move of the Capital to somewhere like Polonnaruwa, as otherwise having unproductive Govt. servants anywhere near the Megapolis area is a recipe for disaster. This move needs courage, but swift action now will prevent congestion of useless jokers wasting the time of useful jokers in the development race of Sri Lanka.

Time again for considered evaluation of the dream for a new Sri Lanka!  

Monday, November 23, 2015

The Budget – those who are debating in Parliament understand it the least!

All 128 pages long (English Version – see link – is more than most can fathom) http://www.lankabusinessonline.com/wp-content/uploads/2015/11/bgtspeech2016E.pdf

is a complete change of philosophy, that hardly any member of parliament can comprehend, which made ex-president Rajapaksa, the reader of 10 budgets incredulous! I believe parliament will take a whole month to debate it, but the only point they will understand and maybe want to change is the removal of duty free status of their vehicles!

This is an extremely complicated set of rules that will take a long time to completely sink in, and no doubt during the next month, we will be fed little tit bits, as to what it really means to most of us. As regards to changes necessary for implementation, that will take a long time to formulate, once the Bill becomes law.

Put simply it aims at having the same tax rate for Income, Corporate and VAT, with as few deductions as possible, after exempting the first 200,000 a month of income plus company perks that are currently not valued, that will be added to get to the 200,000.

It is hoped that by this exercise there will be more compliance, and I trust means are used by the Inland Revenue to easily identify those who neither have a tax file, or are paying any tax, but have an extraordinary expenditure level, that they cannot explain. The latter is the secret of getting another 100,000 tax payers into the net within the year, who most likely would NOT mind paying the 15% tax rate!

There are a lot of new ideas floating around, but how it will incentivize businesses to grow and prosper is another story, as that depends on the opportunities the Govt. and private sector give for a fair and unbiased playing field in which ti prosper, without having to pay protection money, or similar barriers to running and growing a business no matter what good intentions the govt. presents.

When one goes through the detail in the budget, it will be clear that the MPs are the least likely citizens of this country to understand a word of what is proposed, and for them to debate like peacocks preening NOT knowing what they are talking about is a complete waste of a month long period in parliament where many more important Acts are awaiting passage.

I would encourage the Govt. and opposition to pass the budget without delay! 

How nice it will be to be in the Rs25M tax-paying league!

The Budget has a pleasant surprise for the Super Rich of Sri Lanka who will be paying taxes of Rs25M to the Government per annum. In order to get to that level one would have to have a taxable income of Rs 167 Million ( A little over US$1M). What is your guess as to how many will make it for the 2016/2017 Tax year? I would say, 1000 would like to get there!

That means both the President and the Prime Minister will have to find time to meet them ONE ON ONE, and then of course the VIP treatment at airports, hospitals and I am sure a whole list that the Govt. will make up to entice people currently not reporting their income, to get to the league of the Super Rich.

In ever so status conscious Sri Lanka, this was an innovative move by the Finance Minister, I dare say he consulted the PM and Pres, as they will have to meet them ALL! People will now want to be in that elite league. If you don’t enter that league you are nobody! The Govt. needs to study this subject a little more to increase the perks that will attract others to become tax payers

I am sure that there will be many who wish to enter this league and want to hob nob as part of this elite! They can sleep tight, as they will no longer have to worry about being caught out. Their deposits will be legitimate, and they will be complying with all regulations. So those currently loan sharking and those highly paid tuition masters, who don’t pay any tax, will most likely want to come in from the Cold, and become legitimate! All those with FDs in the billions will also have to disclose and the Govt. will already know who they are, that got the 10% withholding in the past.

It might suddenly become quite fashionable to pay taxes, as now it is fashionable NOT to even have a tax file, which is part of the problem, Inland Revenue is grappling with.

Please remember that Interest Income was taxed at 10% withholding, and did not come into the overall income tax return. Now there is NO withholding tax, but it will be part of your income on which you will have to pay 15%.

The best move would be for the Wealthy with loads of cash, to take it from under their mattresses, lend it to their companies, pay down the bank debt at higher rates, and lend a lot more to them at higher rates. The company can then reduce its profits by the interest paid to the lender (owner) who will pay tax at 15% on that and on his deemed dividend suffer the double tax, of the company first at 15% and then his at another 15% of the net he receives, as the Finance Bill as currently drafted does not give relief for the dividend income received.

Elephant Complex – best describes the psyche – “huna mind”

It was with amusement that I read that a new travel book on Sri Lanka, by a British Author, John Gimlette was called ELEPHANT COMPLEX. 

This is more apt than the oft used by line to describe the Sinhala as a “Majority with a minority complex” In fact to be the Elephant Complex applies to ALL who live on the Island, no matter what race or mix one hails from. Mindset is no different!

I with a thousand or pages of goading in this blog, try to explain, what this mind set is and it is time to change that, so we all who live in SL can put our differences behind and work on a common goal, for all to live in peace and harmony, in this God given Isle, that has NO parallel on earth, but may perhaps be akin to Paradise, in any way we wish to describe it.

I vote with my feet firmly on terra ferma, NOT having left this ground for over 10 years, but having lived most of my life till then in the many Countries of the Western world, where I could live, any of them as a matter of fact even today.

My ambition is to give something back, to unite this sense of belonging, to this UNIQUE place on earth, and to be proud to be citizens, and offer Citizenship to all who have renounced citizenship, as well as to the children of Sri Lanka born, to create a world of Sri Lankans in all parts of the world, who can vouch, wherever they may live, or choose to live due to one’s own personal circumstances, that Sri Lanka is forever the land of their heritage and heart!

Now isn’t that a worthy ambition? I don’t want to be greedy, holding onto citizenship, just for those who live here, but ALSO allow those who have had to renounce it (and their offspring) to regain it, at cost of passports, so that with their identification as Sri Lankans is NOT just a token in the mind, but a state of FACT.

Just think the 2Million extra citizens, will bring a minimum of US$20B investment to SL for all purposes. We WILL NOT have to attract a penny in FDI from jokers who can chose to invest anywhere! We will have it ONLY from our genuine BLOODSTOCK!

I guarantee that within 10 years will be a US$10,000 GNP per capita Country, and the Govt. has ONLY to ensure the distribution of this wealth is spread more equitably, and ensure that there is NO erosion of the Environment, preserve the beauty, increase forest cover, preserve our Common Fundamental Rights.    

With this kind of fund transfer to buy land, buildings, businesses and expenditure, we don't need Government to worry about debt servicing, 

All they need to do is reduce waste in the public service, Ensure all investments conform to strict ecological guidelines, and strict preservation of our natural beauty for ALL, as it will be a win win situation.

The 2 Million Diaspora I refer to currently have a combined income of 5 times the Country's GNP. I am only assuming 2.5% of that will be brought to SL in one form or another to make the US$20B, which when added to the SL Citizen Diaspora remittances of US$10B is a mammoth inward freeby, that will avoid the need for export lead growth or any other painful alternative!

Don't forget in keeping with the environmental pledge every three wheeler (all 500K) will have to be destroyed as they contribute 80% of air pollution. These drivers will do far more remunerative and productive work. This is giving one practical example of what the Govt. will be tasked to do. Prioritize in saving the environment to preserve PARADISE.

Saturday, November 21, 2015

How can your future be determined by BIG BROTHER at age 9?

I have advocated for years to abolish the Grade 5 exam, as inconsequential and meaningless in the context of the end result of a child’s growth, and more likely that not to be a negative factor, and therefore to be abolished.

The link here is further evidence to the likely harmful effects on at least 50%. http://www.island.lk/index.php?page_cat=article-details&page=article-details&code_title=135602  

It is therefore worth returning to this topic again, bringing this back on the front burner. The facts are that in order to get into your selected school only 5% of the students get the minimum mark and from that number, only about 500 actually are taken into the school of their choice from this mark, completely negating the value, and so 95% of children who go to classes and burn the midnight oil don’t benefit from this at all.

My contention is that in the end, results also have proved, the passing of the minimum mark at this exam is NOT an indicator of if you are more or less likely to enter University. That is obvious from human psychology. Some kids develop later than others.

The proof of the pudding is that if we abolish this exam, we begin to see the overall performance of children IMPROVING. Then what is the allegation. It was a human rights violation on the part of the State to even have such by rote exams for children at such a young age, when exam competition and feeling of inadequacy if poorly performed, can have devastating and lasting effects on children.

Time yet again to take stock of this and decide on an alternative tack, but included as part of the overall education reform plan that is long overdue, so we are able to maximize on a student’s capability that may be unique to that student and NOT common to all.

Just as I had recommended, we need reform of the Montessori system as that is the critical age, where enthusiasm and learning are developed, and the mental capacity of a child is tested. IF we put the emphasis of training good teachers for Montessori and pay them well and try to encourage creativity from our students, that will hopefully be followed up with a similar forward looking push at Primary level, laying the foundation for a good education and learning process for later in life.

We must put pressure on our leaders to lead from the head of our youth!

Friday, November 20, 2015

I find this an outrageous statement – People in the Private Sector are still not paying enough tax to keep pace with the salary increments paid to state works.

Get a life. They are mutually exclusive and NOT related. Yes, the private businessmen in Sri Lanka pay a very low proportion of their income in taxes. It is very easy to find who, and collect taxes, as pointed out in numerous papers by the Central Bank, where a unique number is attached to a person, (NI is OK) to record all purchases and sales, to know who they are, and then see how their purchases of trips or product above a minimum value (say Rs100,000) are financed. The reason this is NOT done, is that the lawmakers are the biggest tax dodgers. Most of whom have even pocketed some of the funds received for their election campaigns.

As a separate issue, the huge cost of public sector pay and pensions will drag this economy down for the next 50 years, UNLESS some drastic action is taken immediately.

The article says that in 2016, the salaries and perks of state workers could top Rs700B is such a preposterous figure, when much of it does not help the economy in ANY WAY.

The first exercise is to look at who is on that list, and why that person is paid that, even if it is a pension, and estimate whether the Country can afford that payment. Then the first step is to try and get some productivity out of that payment if it is wasted. This can be done by re training in fields that are desperately needed, such as the Mental Health Sector which is grossly underfunded and understaffed! 

A re allocation of resources in the State Sector as suggested in many of my blog entries will help the economy both grow, preserve our resources, natural and renewable, and reduce waste. On immediate need as I have mentioned before is using he Armed Forces to guard and preserve some of the 250,000 sights of archeological value, that are currently not only pen to the elements, they are also open to treasure hunters with new ground scanning technology.

So let us look at the most effective and fair means of raising revenue for the Govt. whilst at the same time trying to ensure that the money spent on public sector wages is used productively to assist the public in more ways than one where the word “Servant” of the State and Public is front and center!      

“The problem with your Politicians is that they are just too arrogant!”

This was just told to me a few minutes ago from a respected foreign investor, who said that either due to some chip on their shoulder, or receiving too much adulation from the public, they are unable to realize the limitation to their knowledge, that everyone has!

They refuse to be introduced into new ideas and training programs. After all one is a student all one’s life, but probably not our Politicians who know it all!

Well funny he told me this, as I think ignorance and the lack of people understanding how ignorant they are is a national trait, and NOT specifically reserved for politicians. They are the most obvious illustrations of the problem, due to their bombastic behavior borne out of habit, and so to someone really in the know, sounds like a complete ass!

In the incident today, I painstakingly showed a person what I wanted done, by even showing how the page should be stapled and which side was right and wrong! Surprise surprise despite all that effort he got the whole thing back to front and he is not dyslexic. At least he was humble enough to admit the error and corrected it next time, and I hope he does not repeat this error in a somewhat repetitive task that was given him.

I think humility is the trait we all must show, and that should NOT seem as a weak sign, However any in Sri Lanka assume that it is a sign of weakness, and to counter that perception, replace it with arrogance. Very un Buddhist.

In Sri Lanka’s context when we are seeking foreign investment, we must be clear what we want, and why, and why we believe that the Investor will be best to come to Sri Lanka to invest, when he has the whole world to choose from.

It is that latter fact that we fail to understand. When someone has the choice of many Countries, the reason to choose Sri Lanka must be very persuasive to make the cut. The factors in that are many, and include many issues like Good Governance, I have referred to earlier. We believe it is favorable tax rates, and I am one to note that it is way down the line of reasons.

I have come across just too many investors who have had their fingers burnt by dishonest local partners, that I am hesitant to recommend going into partnership with most of them, as their credibility is questionable. If our top business leaders have that moniker attached to them, who can I send them to?

In a budget aimed at FDIs we must answer these questions satisfactorily first!