COPF: Tax concessions granted to BoI enterprise should be scrutinised

‘There cannot be special status for anyone when across the board 30% tax is imposed on exporters’

By Shamindra Ferdinando

Committee on Public Finance (COPF) Chairman and SJB MP Dr. Harsha de Silva says unprecedented tax concessions given to HCL Technologies (HCL) that entered into an agreement with John Keels Holdings (JKH) last year should be reviewed in view of the imposition of a controversial 30 percent tax across the board on companies in the exports sector with effect from 01 Nov.Dr de Silva emphasised that reappraisal was necessary 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 agreement hadn’t been tabled in Parliament yet, the Colombo District MP said that India-Sri Lanka joint enterprise couldn’t be granted special status in terms of the Strategic Development Project Act, No. 14 of 2008 at a time the country was in dire straits.

Dr. de Silva said on Saturday (15) that particular Act should be rescinded in view of the agreement with the IMF. The economist questioned the unchecked authority enjoyed by the Minister, assigned that particular subject, to grant concessions up to a period of 25 years.Responding to another query, Dr. de Silva said that the economy was in such bad shape the whole process of granting concessions to investors should be reevaluated.

Failure to do so could trigger public protests at an unprecedented scale. SJB leader Sajith Premadasa has repeatedly flayed the Wickremesinghe-Rajapaksa government over declaration of a range of taxes. The COPF on Oct 04 granted approval for sweeping tax concessions to the HCL-JKH enterprise, less than 24 hours after rejecting the proposal made by Chairman of the Board of Investment (BoI) Raja Edirisuriya for exemptions of VAT, Dividend tax, PAL, CESS, Income tax, customs duty, etc.

At the time of the new appointment, Edirisuriya served as the Executive Director of the Colombo Port City Development Project. One-time Chairman of bankrupt Mihin Lanka succeeded Sanjaya Mohottala, who resigned after having appointed 29 staff with salaries over Rs 700,000 a month.

Under the agreement between HCL and JKH, the former occupied 80 percent of space in the 30-storey Grade –A state-of-the–art Cinnamon Life complex. The finalization of that agreement and the inauguration of the project was attended by the then BoI Chairman Sanjaya Mohottala, JKH Chairman Krishan Balendra, Indian High Commissioner Gopal Baglay, the then Finance Minister Basil Rajapaksa, HCL Technologies Chief Financial Officer Prateek Aggarwal, and Corporate Vice President Srimathi Shivashankar.

The Island sought an explanation from Dr. de Silva why the COPF granted approval having lambasted the top management of the BoI for seeking a far-reaching tax holiday at a time the bankrupt government was taxing all, regardless of the consequences. Dr. de Silva said the parliamentary watchdog committee didn’t enjoy executive powers.

Referring to a statement issued that had been issued by Parliament on Oct 04 in this regard, Dr. de Silva said though the parliamentary watchdog committee granted approval for the relevant after receiving required information, the basis for giving such tax concessions should be properly analyzed and a appropriate policy prepared in future to determine the tax concessions depending on the size of the investment.

Minister Vidura Wickramanayaka, State Ministers Shehan Semasinghe, (Dr.) Suren Raghavan, Members of Parliament Anura Priyadharshana Yapa (Dr Harsha de Silva’s predecessor), Chandima Weerakkody, Mayantha Dissanayake, Harshana Rajakaruna and Prof Ranjith Bandara (Chairman, Committee on Public Enterprises) attended the Oct. 04 COPF meeting.HCL entered Sri Lanka in 2020 as the country was rapidly heading towards economic crisis.

The COPF earned praise from the public for the stand taken at the Oct 03 meeting where the outfit strongly opposed India-based Tech Company a slew of tax concessions spanning more than 10 years, including an exemption from the income tax for 17 years, with the final five at half the rate. Both de Silva and COPF member Dr. Suren Raghavan declared the BoI proposal was unacceptable. At one point SLFPer Raghavan said that 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 that the same fate would befall him if the COPF granted such concessions. However, MP de Silva advised Dr. Raghavan not to be so dramatic.

The COPF took a strong stand after the top management of the BoI failed to answer Dr. de Silva’s query regarding the basis for such large tax concessions. The MP asked: “You are asking the COPF to grant a 12-year total tax holiday. If this was approved, what is the tax benefit that would be given to the company and the foregone tax to the Government?”

An irate de Silva said “This is embarrassing, Chairman. This is not how to run a BoI. We have given you ample time to come up with the figures. You are embarrassing the Government, coming here asking for a massive tax break for 17 years. Can you run a county like this Chairman? Even a tea boutique is run better. You should feel very very bad and be ashamed. Your conduct is not professional, this is not how to conduct official business. In my entire career, I have not faced such a hopeless situation like this.” Dr. de Silva questioned Edirisuriya over his role in the Colombo Port City development. The COPF asserted that the BoI was struggling to cope up with its duties, and responsibilities, and run in an extremely unprofessional manner.