Economic Capsule - November 2013

1. Economic Capsule
November 2013
< Research & Development Unit >

2. CONTENTS
FINANCIAL SECTOR NEWS 

Results for the nine months ended September 30, 2013
ECONOMIC & BUSINESS NEWS 

Budget 2014 – Summary

Budget Highlights 2014

Government Revenue Proposals

Aitken Spence to Build US$ 100 mn Resort in Ahungalla

Sri Lanka to Sign USD 2 Bn FDI Deals

Colombo Port City

Other Investments

Sri Lanka GDP grows 7.8 % in 3Q, 2013

External Sector Performance – September 2013

The Wealthiest Sri Lankans – Forbes Asia

3. Financial Sector News

4. Commercial Bank Results for the 09 months ended September 30, 2013
< Research & Development Unit >

5. Economy & Business News

6. BUDGET 2014 - SUMMARY
Total Revenue and Grants
Total Revenue
(Rs. Billion)
2013
2014 Budget
1,203.1
1,469.5
1,183.1
Total Expenditure 2014
1,437.4
Tax Revenue
1,052.2
1,274.6
Non Tax Revenue
130.9
162.8
20.0
32.0
1,712.4
1,985.6
1,224.9
1,328.3
Public Investment
503.9
668.5
Other
(16.4)
(11.1)
(41.7)
109.2
(509.2)
(516.1)
Total Financing
509.2
516.1
Total Foreign Financing
149.8
235.5
Total Domestic Financing
359.3
280.6
Revenue and Grants/GDP (%)
13.8
14.8
Expenditure/GDP (%)
19.7
20.0
Budget Surplus (+)/Deficit (-) / GDP (%)
(5.8)
(5.2)
Grants
Total Expenditure
Recurrent
Revenue Surplus(+)/Deficit(-)
Budget Deficit Surplus(+)/Deficit(-)
Total Revenue 2014
Source: Ministry of Finance & Planning, PwC
< Research & Development Unit >

7. Budget Highlights 2014
Source: PWC

8. Budget Highlights 2014
Banking & Finance
 Any finance companies which are subsidiaries of a main company to be absorbed by the main company to consolidate
their operations;
 Similarly, finance companies owned by a banks are also to consolidate their operations by acquiring finance companies
within the group;
 The cost of acquisition or merger of banks or finance companies by the main company will be given qualifying payment
status for tax purposes; to be claimed within 3 years of assessments.
 Also, development banks are encouraged to merge and CRIB to be improved to facilitate both banks and customers; and
 Any bank, finance company, insurance and manufacturing activities liable to tax at 28% will be given half tax holiday of
three years provided such company is listed its shares on the CSE in 2014.
 NBT: The business of providing banking and financial services which were hitherto exempt from NBT has been made
liable to NBT. The Banking and Finance sector was excluded from NBT on banking business from the inception of the
NBT law. The imposition of NBT @ 2% would mean that a turnover based tax is imposed on this sector after a lapse of
15 years. However, it appears that post budget discussions are moving toward imposing the 2% NBT on Banking and
Finance sector profits liable to financial VAT. This is yet to be finalised by the ministry and gazetted.
< Research & Development Unit >

9. Budget Highlights 2014 (cont…)
Shipping and aviation
 Income of shipping industry will be taxed at 12% to be in par with export sector income tax rates;
 Aviation services and related activities for payment in foreign currencies will also be treated as exports for VAT
purposes and be exempt from NBT.
External trade
 Government endeavors to reach India, Japan, China, Australia, S.Arabia, UAE, Qatar, Russia, South Africa and Brazil in
addition to America and Europe in order to achieve new waves of export growth. In this regard:
 Credit facilities at rates not exceeding 8% for manufacturing and SME industries are expected to be provided to
modernize their factories to be energy efficient to achieve international competitiveness;
 Online facilities will be extended to imports in relation to ports and customs and USD 20 bn in 2020 is expected from
exports.
Telecommunication Levy
 Present rate of 20% will be revised to 25%
< Research & Development Unit >

10. Budget Highlights 2014 (cont…)
Ownership of lands by foreigners
 Foreigners will only be allowed to access both state and private lands through long-term leases;
 Land lease tax will be implemented to protect long-term value of lands; and
 A 15% WHT will be collected upfront when leasing both state and private lands to foreigners.
State enterprises
 All previous loans granted to Ceylon Electricity Board, National Water Supplies and Drainage Board, Airport & Aviation
Services and Sri Lanka Ports Authority by the Treasury will be converted to Government Equity;
VAT on Wholesale and retail trade
 The present threshold of quarterly value of supplies of any person or partnership carrying on a business of wholesale or
retail trade for the chargeability to VAT, will be reduced from Rs 500 mn to Rs 250 mn.
 Whether a subsidiary or associated company of a group of companies, engaged in a wholesale or retail sale, has reached
the liable threshold for any quarter will be determined based on the aggregate value of supplies of each company in the
group, engaged in such trade, for that quarter.
< Research & Development Unit >

11. Budget Highlights 2014 (cont…)
Fisheries and livestock
 Higher custom based taxes on import of these products while further expanding incentives granted to export of fish products and
ornamental fish;
 LKR 1,000 mn allocated to development of existing fisheries harbors and higher taxes on import of fishing boats;
 Special loan scheme at interest of 8% will be implemented to SMEs in the dairy sector while higher import CESS on butter,
yoghurt and dairy products; and a pricing formula to be introduced to poultry.
Agriculture
 A three-year plan is proposed to rehabilitate all abandoned paddy lands and to put them back into productive use.
LKR 2,300 mn has been proposed for this task including rehabilitation of tanks and minor irrigation schemes;
 Value added exportation of coconut, tea, rubber, cinnamon and pepper will be encouraged via strengthening of export CESS;
 A comprehensive assessment of underperforming plantation companies out of those privatized on 50-year lease agreements will
be performed. Those companies that had performed well will be provided a credit scheme with eight year maturity at 6% subject
to conditions, and LKR 500 mn will be earmarked for this development loan scheme;
 A pension scheme for farmers over 63 years of age will be implemented from 2014. A government contribution of LKR 1,000 mn
is provided for this fund; and
< Research & Development Unit >
 LKR 500 mn will be provided for research work of agricultural faculties on food technology.

12. Budget Highlights 2014 (cont…)
Financial support for livelihood
 All banks and financial institutions are requested to grant at least 500 working capital loans of LKR 25,000 each at the rate of 6%
without any collateral to selected families;
 Women Entrepreneurship to be improved and Regional Development banks and SME banking units of commercial banks to
provide working capital loans up to LKR 250,000 with no collateral
Public service
 Cost-of-Living allowance of public servants will be raised by LKR 1,200 per month; and
 Pensioners who retired before 2006 and others will receive LKR 600 and 400 per month respectively.
Skills development
 The Government has secured around USD 350 mn budget support from the World Bank and the Asian Development Bank to
supplement Government expenditure on skills education.
 A deduction of 10% of income tax payable by a ship operator or any agent of a foreign ship will be allowed in consideration of the
provision of skill development in the shipping industry to trainees. The criterion for the deduction will be decided based on the
number of individuals trained.
< Research & Development Unit >

13. Budget Highlights 2014 (cont…)
Sri Lanka as a Regional Medical Hub
 An allocation of Rs. 2,500 mn to build a state-of-the-art Post Graduate Institute of Medicine over the next 3 years.
 Setup a Centre of Medical Excellence to continue to obtain the services of specialized medical professionals after the completion
of their service term and to broaden specialized medical services in our country.
Professional Services Hub
 Where any individual engaged in any profession alone or together with such other individuals, set up a consortium with a bank
and the construction contractors for the purpose of constructing a residential apartment complex for their own residential
purposes, following concessions will be accorded;
 Bank providing loan facility will be taxed only at half of the applicable rate on the interest on such loans granted to such
individuals for that purposes.
 Qualifying payment of an amount not exceeding Rs. 50,000 per month on the capital repayment will be allowed to be deducted in
full by such individuals, on the respective payment.
 Stamp Duty applicable on the deed of transfer of the property will be reduced by 25 % thereof.
< Research & Development Unit >

14. Budget Highlights 2014 (cont…)
Professional Services Hub (cont...)
 Following concessions will be given to the professionals who establish corporate entities to provide international services
 Half of the applicable corporate income tax rate for a period of 5 years on services liable to tax;
 Concessions of 10 % of the aggregate taxes and duties on the importation of a motor vehicle will be allowed, if more than USD
100,000 per year is remitted to Sri Lanka in any consecutive period of distinct 3 years.
IT Industry Development
 It is proposed to develop an ICT Zone at Hambantota as the emerging ICT Hub of South Asia, capitalizing on the newly built
infrastructure such as the Port, Airport, expressway and the railway network, by promoting investments in this zone.
 The new Revenue Protection Order provides a better classification for IT and IT related products under a single tariff band with
reduced rates of import duty.
 Removal of the prevailing anomalies relating to VAT on hardware and software and further simplify taxation.
 Allocation of Rs.1,000 mn to implement a 3 year program inclusive of the expansion of Nanasala centers with reading facilities in
the villages, in line with the new IT policy strategy of the Government. The transformation of public institutions by introducing
web based facilities to enable the provision of public services such as issuance of construction permits, land and property
registration, investment approvals etc. on line, is a major component of this reform agenda.
< Research & Development Unit >

15. Budget Highlights 2014 (cont…)
Revenue
Proposal
( Rs. Mn)
Extension of NBT to banking and financial institutions
3,665
Strengthening the application of Value Added Tax at supermarket and trade scale (Quarterly turnover of
Rs. 250 mn and exemption limited to 25 percent of turnover)
15,000
Telecommunication Levy to be fixed at 25 percent
4,000
Revision in depreciation of motor vehicle for Customs Duty
2,000
Revision in CESS on Primary Commodity Exports and items vulnerable to undervaluation to ensure
domestic value chain
4,000
Revision in Special Commodity Levy / Customs Duty for the support of local value addition
12,750
Total
41,415
< Research & Development Unit >

16. Summary of the Budget 2014
Rs.bn
2012
Est. 2013
2014
Total Revenue and Grants
Total Revenue
Tax Revenue
Income Tax
Taxes on Goods and Services
Taxes on External Trade
Non Tax Revenue
Grants
Total Expenditure
Recurrent
Salaries and Wages
Other Goods and Services
Interest
Subsidies and Transfers
Public Investment
Education and Health
Infrastructure
Other
Revenue Surplus(+)/Deficit(-)
Budget Deficit Surplus(+)/Deficit(-)
1,067.5
1,051.4
908.9
172.6
519.1
217.2
142.5
16.1
1,556.5
1,131.0
347.8
140.0
408.5
234.7
443.9
46.1
397.8
(18.4)
(79.5)
(488.9)
(6.4)
1,203.1
1,183.1
1,052.2
239.5
578.0
234.7
130.9
20.0
1,712.4
1,224.9
391.4
132.2
444.8
256.4
503.9
55.5
448.4
(16.4)
(41.7)
(509.2)
(5.8)
1,469.5
1,437.4
1,274.6
283.3
688.0
303.3
162.8
32.0
1,985.6
1,328.3
410.6
191.8
441.0
284.7
668.5
74.1
594.4
(11.1)
109.2
(516.1)
(5.2)
Budget Surplus (+)/Deficit (-) / GDP (%)

17. Aitken Spence to Build US$ 100 mn Resort in Ahungalla
Aitken Spence will partner with
RIU-Hotels Spain to build US$ 100 mn
resort in Ahungalla spearheading the
first business model around Southern
development.
 Aitken Spence PLC will launch the first business model involving the Southern Highway and the Mattala
Airport by investing in a US$ 100 mn beach resort in Ahungalla to be managed by an international hotel chain.
The five storey 500 roomed 5 star luxury resort which will be managed by RIU Hotels, Spain, would also be a
first for the Spanish chain, being their inaugural project in the Asia Pacific region.
 The project will also be unique in its concept, since it will introduce charter flights to the country. The hotel
which would cater to high end customers looking for long stay vacations will arrive on Boeing 787 Dreamliner
charters which can carry upto 200 to 300 passengers at a time. RIU Hotels, is an all-inclusive model which has
seen international success across 107 properties managed by them in 16 countries.
< Research & Development Unit >

18. Sri Lanka to Sign USD 2 Bn FDI Deals
Project
Investing Company
Port City Colombo
This includes breakwater, reclaiming land on sea,
road construction, water and drainage facilities
and other infrastructure for the proposed
artificial island in Colombo.
China
Communications
Construction Co Ltd.
Amount
USD Mn
Completion by
1300
(USD 390 mn equity
and USD 910 mn of
loans)
8 years
Australia’s Property
Alliance Capital Co.
450
5 years
AVIC International
Engineering of Hong
Kong.
250
5 years
Mixed Development Project
This includes commercial buildings, malls, service
apartments and multi-level car parks in Sir James
Peiris Mawatha, Colombo.
Apartment Complex (528-unit)
The project includes a housing, apartment and a
shopping complex in Colombo.
< Research & Development Unit >

19. Colombo
Port City
 The project by China Communications Construction will build the port city on a 233 hectare site that
will be reclaimed from the sea.
 The site is next to Sri Lanka’s main port and Colombo’s historic Galle Face Green seafront.
 According to the proposed deal, 108 hectares of land will be given to the Chinese firm after the port
city development, while 63 hectares and 60 hectares of land will be given for public usage and the
State-run Sri Lanka Ports Authority respectively.
 The land will be given to the Chinese company on a 99-year lease and the project will be completed in
eight years.
 It has already created new land near the proposed port city as part of its expansion of the Colombo
Port to double its capacity by 2015.
< Research & Development Unit >

20. Other Investments
Project
Investing Company
Amount
Build a Golf Course and
Two hotels in Hambantota and Katunayake
−A resort in Mattala will have a golf course, a 250-room hotel and
a tax free shopping complex.
China Harbhour Engineering
Company
−A 200-room transit hotel in Katunayake will also have a 1000
vehicle car part and tax free shopping facilities.
< Research & Development Unit >
Over
USD 500 Mn

21. Sri Lanka GDP grows 7.8 % in 3Q, 2013
3Q, 2012
3Q, 2013
4.8
7.8
Agriculture
-0.5
7.0
Industry
7.3
8.1
Services
4.6
7.9
Gross Domestic Product (GDP)
SL’s 2013 economic growth will stand at a minimum of 7.2%, according to
the Central Bank Governor, down from an earlier forecast of
7.5%.
External Sector Performance – October 2013
Jan-Oct
Jan- Oct
Jan- Oct (%)
2012
2013
Growth
Exports
8,075.0
8,368.3
3.6
Imports
15,752.2
15,583.9
-1.1
Balance in the Trade Account
-7,677.3
-7,215.7
-6.0
Workers’ Remittances
4,940.8
5,521.9
11.80
Foreign Direct Investments (1H)
614.7
870.1
42.0
Earnings from Tourism
790.5
996.2
26.0
Category (USD mn)
 Earnings from exports in October, 2013 exceeded USD 1 bn for
the first time in the history.
 Earnings from textiles and garments exports grew by 46.8 %,
year-on-year, to USD 436 mn in October 2013, which was the
highest monthly value of export of garment and textiles ever
recorded.
< Research & Development Unit >

22. The Wealthiest Sri Lankans – Forbes Asia
Dhammika Perera

Dhammika Perera’s estimated $550 mn fortune is most likely one of the four biggest in Sri Lanka.
It’s impossible to rank the four piles because much of the wealth is held in private assets, but in alphabetical
order, here are the other three:
Sohli and Rusi Captain

Family is the largest shareholder in conglomerate John Keells Holdings and Chemical Industries Colombo.
Investments include banking, paint, agribusiness, raw materials, packaging and pharmaceuticals. Stock
market wealth totals $185 mn. Father Sohli turned 80 in September; son Rusi, 48, a graduate of the
University of Miami in Florida, is an entrepreneur and investor.
Harry Jayawardena

Chairman of the Stassen Group, which he founded as a tea exporter in 1977, and conglomerate Distilleries
Co. of Sri Lanka. The 71-year-old was awarded the Knight’s Cross of Dannebrog by Queen Margrethe II of
Denmark for his contributions to Danish arts, sciences and business.
Hari and Mano Selvanathan

The brothers’ empire is largely private. Their listed companies Carson Cumberbatch, Bukit Darah, Ceylon
Beverage Holdings and others are involved in palm oil, financial management, brewing, real estate and
hotels. Hari, 64, and Mano, 66, are the grandsons of an Indian immigrant who arrived in Colombo nearly
100 years ago, started a petrol station and never stopped expanding.

23. The views expressed in Economic Capsule are not necessarily those of the Management of Commercial Bank of Ceylon PLC
The information contained in this presentation has been drawn from sources that we believe to be reliable. However, while we have taken reasonable care to maintain accuracy/completeness of the
information, it should be noted that Commercial Bank of Ceylon PLC and/or its employees should not be held responsible, for providing the information or for losses or damages, financial or otherwise,
suffered in consequence of using such information for whatever purpose.
Research & Development Unit