“There can be no special status for anyone when a general 30% tax is imposed on exporters”
By Shamindra Ferdinando
Chairman of the Public Finances Committee (COPF) and MP for SJB, Dr Harsha de Silva, said that the unprecedented tax advantages granted to HCL Technologies (HCL) which entered into an agreement with John Keels Holdings (JKH) the last year should be reconsidered in view of the imposition of a controversial 30% tax on companies in the export sector from November 1. Dr de Silva stressed that a reassessment was needed as the proposed tax would be imposed in line with the recent staff level agreement reached with the International Monetary Fund (IMF).
Noting that the deal has yet to be tabled in Parliament, the Colombo District MP said the India-Sri Lanka joint venture cannot enjoy special status under Law No. 2008 on strategic development projects at a time when the country was in dire straits.
Dr de Silva said on Saturday (15) that the particular law should be repealed in view of the agreement with the IMF. The economist questioned the unchecked power enjoyed by the minister, in charge of this particular subject, to grant concessions for up to 25 years. Responding to another question, Dr de Silva said the economy was in such bad shape that the whole process of granting concessions to investors should be reassessed.
Failure to do so could trigger public protests on an unprecedented scale. SJB leader Sajith Premadasa has repeatedly blasted the Wickremesinghe-Rajapaksa government for declaring a series of taxes. The COPF on October 04 granted the approval of vast tax concessions to the HCL-JKH company, less than 24 hours after rejecting the proposal made by the Chairman of the Board of Investment (BoI) Raja Edirisuriya for VAT exemptions , dividend tax, PAL, CESS, income tax, customs duties, etc.
At the time of his new appointment, Edirisuriya served as the executive director of the Colombo Port City Development Project. The former chairman of bankrupt Mihin Lanka took over from Sanjaya Mohottala, who resigned after appointing 29 employees with salaries in excess of Rs 700,000 per month.
As part of HCL’s deal with JKH, the former took up 80% of the space in the state-of-the-art, 30-story Cinnamon Life complex. The finalization of this agreement and the inauguration of the project were attended by then BoI Chairman Sanjaya Mohottala, JKH Chairman Krishan Balendra, Indian High Commissioner Gopal Baglay, Finance Minister of at the time, Basil Rajapaksa, the chief financial officer of HCL Technologies, Prateek Aggarwal, and the company’s vice president. President Srimathi Shivashankar.
The Island asked Dr de Silva why the COPF granted its approval after lambasting BoI senior management for seeking a sweeping tax holiday at a time when the bankrupt government was taxing everything, regardless of the consequences. Dr de Silva said the parliamentary oversight committee does not have executive powers.
Referring to a statement issued by Parliament on October 04 in this regard, Dr de Silva said that although the parliamentary oversight committee gave its approval after receiving the required information, the basis for granting such tax concessions should be properly analyzed and an appropriate policy prepared in the future to determine the tax benefits depending on the size of the investment.
Minister Vidura Wickramanayaka, Ministers of State Shehan Semasinghe, (Dr) Suren Raghavan, MPs Anura Priyadharshana Yapa (predecessor of Dr Harsha de Silva), Chandima Weerakkody, Mayantha Dissanayake, Harshana Rajakaruna and Professor Ranjith Bandara (Chairman of the Committee on Public Enterprises) attended the COPF meeting on 4 October. HCL entered Sri Lanka in 2020 as the country was rapidly heading towards economic crisis.
The COPF received public praise for the position taken at the October 3 meeting, where the team strongly opposed a series of tax breaks over 10 years, including a tax exemption income for 17 years, with the last five at half the rate. De Silva and COPF member Dr Suren Raghavan said the BoI proposal was unacceptable. At one point, SLF Per Raghavan said he didn’t want his house to be attacked again. Referring to the destruction of his house during the July 1983 riots, Dr Raghavan said the same fate would befall him if the COPF granted him such concessions. However, Silva’s MP advised Dr Raghavan not to be so dramatic.
COPF took a tough stance after senior BoI leadership failed to respond to Dr de Silva’s question about the basis for such large tax concessions. The MP asked: ‘You are asking COPF to grant a full tax exemption for 12 years. If this were approved, what is the tax benefit that would be granted to the company and the tax lost to the government? »
A furious de Silva said: “This is embarrassing, President. That’s not how to run a BoI. We’ve given you plenty of time to present the numbers. You are embarrassing the government by coming here asking for massive tax relief for 17 years. Can you run a county like this president? Even a tea shop is better managed. You should feel very very bad and ashamed. Your conduct is unprofessional, it is not the way to conduct official business. In my entire career, I have not faced a situation as desperate as this. Dr de Silva asked Edirisuriya about his role in the development of the port city of Colombo. COPF claimed that the BoI was struggling to meet its duties and responsibilities and was operating in an extremely unprofessional manner.