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Friday Sep 20, 2024
Wednesday, 24 January 2018 00:00 - - {{hitsCtrl.values.hits}}
By Charumini de Silva
Exporters last week, whilst welcoming the new Foreign Exchange Act, called for clarity from the Government on the implementation of the new regulations, insisting that too many agency functions related to trade had created confusion.
“There is so much confusion in what’s going on with the Act. We find the ambiguity that exists between the Central Bank, Finance Ministry and Inland Revenue Department (IRD) in executing the new regulations,” Exporters’ Association of Sri Lanka (EASL) Immediate Past President Fazal Mushin said, at a seminar on the new Foreign Exchange Act organised by the Ceylon Chamber of Commerce.
Although there were high expectations that the introduction of IRD’s Revenue Administration Management Information System (RAMIS) would make collecting taxes hassle-free and revolutionise tax culture in Sri Lanka, Mushin pointed out that the reality was very different.
“Of course RAMIS is there, but it is nowhere near completion. We don’t know when it will be completed. In a competitive environment, this is causing us inconvenience. Everyone here is supposed to serve us, to improve and increase exports. Yet, continuously our systems and policies let us down,” Mushin said.
In the context of the legal requirement introduced for repatriation of the proceeds, Mushin said that they had only 180 days, whereas other countries were given 300 days.
“We can bring money from abroad, pay 1% and do money laundering. But if we want to pay commission to an agent, we need to get a tax clearance. Do we have time for all these as exporters? I don’t think so. Where do we take our grievances? I would like to see some clarity from policy level,” Mushin stressed.
Hayleys Group Tax Head Roshan Anselm also said it was puzzling how the outdated regulation has again been included in these modern and forward-looking regulations.
“Export surrendering was prevalent before 1993. In 1993 the requirement to surrender was abolished to promote merchandise exports. Then in the 2015 Budget speech, there was a verbal appeal for exporters to bring in foreign currency and in 2016 it was gazetted and it went to the 2017 foreign exchange regulation. We don’t know how,” Anselm said.
Noting that it was not about the number of days, Anselm emphasised that the fiscal policy and the regulatory policy should not interfere with trading practices. “Therefore, my humble request would be that policy makers take a serious note of this. This Act is not the end, but the beginning. Hence, during future amendments, make suitable revisions,” he said.
Central Bank Foreign Exchange Department Director Udeni Alawattage said: “After signing IMF Article No. 8 in 1993, almost all countries that signed it shouldn’t have this kind of restriction. Despite that, developing countries like Sri Lanka, India, Pakistan, Indonesia, Thailand, all countries have restrictions.” However, he noted that there were two arguments: the first being, once a country signs the IMF Article No. 8 there should not be restrictions to accommodate free cross-border transactions. The second argument is that as the export resources being used are domestic resources, after conducting all business the ultimate proceeds should come to Sri Lanka.
“After drafting all these directions and regulations, in my covering letter sent to the Minister, I mentioned there in bold letters, that the export proceeds regulation and 2002 gazette in 40% ownership limitation has to be revisited. However, for some reason it has not been considered and included in the gazette,” Alawattage pointed out.
Alawattage asserted that the legal requirement introduced for repatriation of the proceeds should be negotiated with the Government. “This 120 days export proceeds matter imposed by the Central Bank was a Cabinet decision. We need Cabinet approval for that. We are in the process of negotiating that with the Government,” he added.
Pix by Lasantha Kumara
Banks likely to face challenging times ahead of executing new Foreign Exchange Act
With the introduction of the new Foreign Exchange Act, the banks are likely to face a challenging time ahead, said Hatton National Bank Financial Institutions Head P.Srikanth, as they are now being tasked to take final discretion on cross border transactions.
“The banks now need to exercise the due diligence and the bona fide which the Central Bank has passed on to us. It is a major challenge to verify the authenticity of the documents and bona fide the transactions. The tough task here is that all the transactions are treated as current transactions,” he said at a seminar on the new Foreign Exchange Act organised by the Ceylon Chamber of Commerce last week.
In this regard, Srikanth pointed out that it was important for the banks to follow uniformity in whatever the required document to each transaction, which would otherwise cause rise in competition to unethical behaviour in the industry.
“We have to do the due diligence based on whatever the documents given. Instances where a document doesn’t reflect clarity, we may call for some declaration. Therefore, the banks need to have uniformity in terms of verifying documents and if not discretion where banks are adopting different basis will lead to unethical competition,” he emphasised.
Previously, when the criteria given to execute the transaction were not clear he said the banks had to direct the issue to the Exchange Control Department of the Central Bank and now it doesn’t require the customer to go back there for any verification as banks are now being tasked to do the final discretion. Srikanth also said the bigger burden the bankswould face was probably to keep all these records for six years according to the Act.
“It is a mandatory requirement to keep the transaction records for a period of six years and the banks now have to find a way to keep them for this long. I suggest that the banks will have to do it in an electronic form,” he added.
However, he said the introduction of the new Foreign Exchange Act overall was a positive move.
Govt. to implement debt repayment levy from 1 April
Clearing the ambiguity within the banking community, the Government said that the debt repayment levy would be implemented through the Finance Act, which is expected in April.
“The debt repayment levy will be implemented through the Finance Act and is expected in April 2018,” Finance Ministry Economic Advisor Deshal de Mel said in response to a question raised by the banking industry at a seminar organised by the Chamber titled ‘Building on Stability: Economic + Sector Review and Outlook 2018’ on 22 January. A participant from the banking fraternity called for clarity from the administration, insisting that bankers find it difficult to forecast if the proposed regulation will be implemented from 1 April. Acknowledging the concerns of the banking industry, de Mel pointed out that there have been discussions with the banks and there was still a consultative process regarding the implementation of the proposed law.
“There have been submissions from the industry requesting clarifications and a rationalisation of the types of transactions subject to the levy. This is under consideration. We have had discussions with the industry. We are working on it,” he added.
Since the proposed debt payment levy is directly involved in the Finance Act, he emphasised that they would do the evaluations of the transactions in the consultative process and make amendments accordingly.
“There are a couple of more months for it (debt payment levy) to come into place,” de Mel added.
He assured that the debt repayment levy would be implemented with a view to achieve the anticipated revenue requirement of the Government, while ensuring minimal disruptions to the industry.
The 2018 Budget proposed to raise Rs. 20 billion through a special Debt Repayment Levy (DRL) at the rate of 20 cents per Rs. 1,000 on total transactions made through banks from 1 April. This will be applicable only for three years and shall not be passed on to customers.
The technical notes to the Budget state that the DRL will be introduced on cash transactions by financial institutions. They add that the levy will be charged on total cash transactions and should be paid by the financial institutions. (CdS)
