Shocking & Damaging Performance Of BOI In Front Of COPF: Sack All The BOI Senior Staff To Save The Country! By Sam Panditha –

The BOI applied for a 12 year Tax holiday for a company called HCL, requesting approval for exemptions of VAT, Dividend tax, PAL, CESS, Income tax, customs duty etc. Approval was needed this week from the Committee on Public Finance (COPF), Chaired by Dr Harsha De Silva. The Daily mirror summarises the laughable performance of the BOI.

“The shockingly poor practice of blindly granting enormous tax concessions to certain foreign investments without knowing their true cost came to light this week when the top brass at the Board of Investment (BOI) was summoned before the Committee on Public Finance (COPF), a parliamentary oversight committee.

The extremely poor state of affairs in granting tax concessions transpired when the BOI officials failed to justify why HCL Technologies, an India-based tech company, which already has commissioned operations in Sri Lanka, should be granted a slew of tax concessions spanning more than 10 years including an exemption from the income tax for 17 years, with final five at half the rate. “

The entire meeting is recorded and available to download.

I recommend all to watch this video, the BOI performance was shocking. 

Chairman COPF  Dr. Harsha  asked a simple and the basic question needed to evaluate the request. “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”.

In Sherlock Homes parlance- “Elementary my dear Watson”!

At the meeting the BOI was represented by the BOI Chairman and 6 other BOI Directors. None of them were able to answer this simple and vital question. The BOI Chairman was even unable to distinguish between revenue and profit. All kinds of excuses and irrelevant facts were presented by the Chairman .

Dr Harsha asked Is there anyone here to give an answer. What is the Tax exemption sought – Is it Rs. One Mn, 5 Mn, 1 Bn, or 500 Bn? It was like addressing a bunch of kindergarten kids. As the BOI was unable to answer, Dr. Harsha De Silva refused to approve the request.

සමාගමකට අවුරුදු 12ක බදු සහනයක් දෙන්න රනිල් පාර්ලිමේන්තුවට දාපු යෝජනාවට අනුමැතිය දෙන්න හර්ෂ බෑ කියයි!

Unable to get the very basic information- Dr Harsha gave additional time for the BOI team to go to a Committee room, call BOI office staff -find the information and come back to the meeting. BOI Chairman said he is going to call the Company HCL to get the figures. If the information is to be obtained from the Company-then what do you need a BOI for?

After the “recess” the BOI team came back and said they contacted the company and the tax benefit is Rs 23 Mn. When Dr Harsha further questioned BOI said it is not Rs 23 MN but USD 23 MN and it is calculated for 10 years, while the application sought is for 17 years.

A further shocker- not knowing the benefit calculated is in Rupees or USD and whether the calculation is for the 17 year period requested or 10 years as claimed as calculated.

We must applaud Dr. Harsha the responsible Economist/ Politician for his intelligence and  patience. After the recess, Dr Harsha was shocked at the incompetence. He bluntly stated “This is embarrassing Chairman. This is not how to run a BOI. We have given you 1.5 hrs to come with the figures- You are embarrassing the Government, coming here asking a massive tax break for 17 yrs. Can you run a county like this Chairman? Even a tea boutique is run better. You should feel very-very bad and be ashamed. This is not professional, this is not how to conduct official business. In my entire career, I have not faced such a useless situation like this”

The Chairman was blaming his staff. The additional issue we must address is what was the seven other BOI Director level staff at the meeting contributing?  None of them had an answer to the FUNDAMENTAL question. Why did they come there wasting Government fuel?

Some staff tried to justify the huge tax concession on the grounds that the Company employs over 1000 staff and pay good salaries. The current dire economic position in the country and Bank interest running to 30% many local companies are crashing. Entire construction and real estate sector is collapsing as Housing Loans are 28% and building materials have jumped 400%. Companies face power cuts and drop in consumer purchasing power due to on-going hyperinflation. Thousands of jobs will be lost. No tax holiday is even considered for thousands of local companies facing closure/ bankruptcy. They are forced to pay the increased VAT and other taxes. In this situation, should we grant $23 Mn tax holiday to a profit making company that enjoyed huge tax  benefits in the past as a BOI Company? We should offer tax holidays to 1000s of local companies facing bankruptcy.

Most of the senior BOI staff is appointed not for their qualifications, but due to  political patronage. When one checks the background of almost all Chairmen and senior officers the key qualification to hold the position was political patronage. Their CVs show for over 15 years they have held Chairmanship in many other Government entities, Ambassador positions etc. Their specific competence and experience related to Investment promotion are in doubt. The main BOI function is to give concessional Government lands on lease as  incentives for Investments- to friends, and continue giving tax holidays on the pretext of bringing foreign investments. Most of the real estate/apartment projects are termed BOI projects. They import steel, ceramic ware  and electrical fittings duty free and make a huge profit selling the apartments. Termed BOI projects they may also get duty free Vehicle permits. This BOI status to construction companies should be stopped. It places the small scale apartment/house builder at a huge disadvantage and also results in the Government losing the tax on locally sourced steel, sanitary ware and electrical fittings.

The Blunt concluding remarks from Dr Harsha De Silva  on the BOI Chairman is sufficient for him to tender his resignation (along with the seven Directors attending), or the responsible Minister/ President to sack them immediately.

The icing on the cake was that the BOI Chairman is also in charge of getting investments to the Port city. God help us! Dr. Harsha asked what the investments are pending for the Port City. Chairman replied- “we are trying to get a foreign Private Hospital and a Private School to be set up there”. There is ample free Government land in and around Colombo to house a foreign funded private hospital or school to be set up. There was no need to resort to the highly expensive creation of the sand mined and filled port city and the resulting huge environmental damage, to set up a hospital and a private school. The Port City will be the biggest WHITE ELEPHANT we created and with this type of leadership- it is doomed!

The BOI Chairman and 7 senior Directors asking for a USD 23 Mn tax break for the Company (estimate given by the Company itself), without BOI having calculated the tax to be foregone, is shocking. One could even assume the Company has given significant financial incentives to the BOI staff to present the case and get their tax benefit.

Just 8 months ago the previous BOI Chairman  resigned on the uproar of appointing  29 staff with salaries over Rs 700,000 a month. Sunday Times summarised as follows: “This team will comprise 29 specialised personnel and suggested to offer attractive remuneration packages in line with the market rates with specific performance targets,” it said. Attached were job specifications for each post along salaries and allowances going up to Rs 700,000 a month. This was approved by the Cabinet, therefore granting the BOI permission to proceed.”  

The way the Tax holiday was presented- we have suspicions if the Company paying someone in BOI to save $23 Mn in tax? BOI companies are granted tax holidays when the initial investment agreement is signed and the tax holiday is for a fixed period. May be every company with the connivance of BOI staff, apply for extended tax holidays. This is fraudulent. The BOI should release the details of companies granted with extended tax holidays in the public interest.

Do we even need a BOI?  Foreign investment would reach countries that have a comparative advantage in investing. Sri Lanka starts with a huge disadvantage. We have the highest number of public holidays and low worker productivity is an issue. We have the most stringent labour laws favouring employees, and it is difficult to fire a non-performing and cheating employee. We have the highest electricity (and water) tariffs in the region. Traffic jams and unproductive time spent in traffic. Logistics a nightmare- shipping, customs and approvals all ask bribes.

I think Dr Harsha De Silva should do a different cost/ benefit analysis next time. The cost of funding the BOI (huge salaries, expensive rent, vehicles and other costs) and the benefit from so called “foreign investments”. It appears that the benefits are even negative as without any justification tax holidays are extended for reasons we all understand.