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Monday February 6th, 2023

Sri Lanka ‘land reform’ disaster made the state the biggest land owner

ECONOMYNEXT – Sri Lanka’s had nationalised land from a number of citizens as well as foreigners and made the state the biggest landowner after independence from British rule, in an expropriation disaster, a top official had said.

The intention of land reform was to distribute land holdings among people taken from large landowners and foreigners in fact a large number of smaller land holders were expropriated to make big state holdings.

Rohan Pethiyagoda, head of Sri Lanka Tea Board, a regulatory body covering the tea sector, say the way Sri Lanka conducted "land reform in the 1970s was a disaster."

"..[W]e took it from a multiplicity of land owners and vested it all in a single landowner, the Government," he told the Planters Association, a body of tea estate managers in Colombo.

"That is not land reform, that is confiscation and then did we plan the way in which this land should be distributed? No, we didn’t,"

He said the most of the productive land was vested in Janatha Estate Development Board, and Sri Lanka State Plantations Corporation. The state then "ran the plantations into the ground."

Pethiyagoda himself was the son of a ‘planter’ or manager of a commercial tea farm.

Barely 20 years later the plantations, once big revenue and tax payers were eating billions of rupees in tax payer money as they struggled to pay salaries of workers.

It was then privatized first through management contracts, and later though 30 year leases as the lack of certainty and ownership did not encourage ownership.

The privatized plantations and performed with varying success depending on the skills of the private business group that bought the farms as well the diversity of crops.

But most are profitable and pays taxes and least rentals to the Treasury now, though there are losses when the commodity cycle turns, especially in less diversified farms.

Freehold land ownership, which emerged in England, developed with Dutch and then British rule. Under the feudal tenure system all land was effectively owned by the King with some limited holdings by temples and devales.

The developmetn of freehold in Sri Lanka was hit by two major events, economic analysts say.

First the British through a ‘waste land ordinance’ took over unused land that ownership could not be proved, creating vast areas of ‘Crown land’. Some of it was given for foreign investors to set up coffee and then tea plantations and others remained as ‘Crown land’.

The post-British period saw saw land, businesses and even homes, where freehold was firmly established being expropriated outright by the state, dealing a severe blow to not just to agricultural productivity, but to the deployment of land to the most productive use, whether in farming or otherwise.

This is in sharp contrast to countries like Japan, which during the 1860 ‘Meiji Restoration’ deliberately broke the Tokugawa feudal land tenure system and gave ownership to people, helping create a massive boost to agricultural productivity and tax revenues. The gains were used to drive industry. By the turn of 1900s, Japan was a global power.

Post-communist states and others like China and Vietnam who allowed property rights to strengthen has also driven up productivity in agriculture. The deployment of former agricultural land for non-agricultural purposes, created even more prosperity. (Colombo/Oct11/2017)

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Sri Lanka to address SME tax problems at first opportunity: State Minister

ECONOMYNEXT – Problems faced by Sri Lanka’s small and medium enterprises from recent tax changes will be addressed at the first opportunity, State Minister for Finance Ranjith Siyambalapitiya said.

Business chambers had raised questions about hikes in Value Added Tax, Corporate Income Tax and the Social Security Contribution Levy (SSCL) that’s been imposed.

It should be explored on how to amend the Inland Revenue Act, Siyamabalapitiya said, adding that the future months should be considered as a period where the country is being stabilized.

Both the VAT and SSCL are effectively paid by customers, but the SSCL is a cascading tax that makes running businesses difficult.

In Sri Lanka SMEs make up a large part of the economy, accounting for 80 per cent of all businesses according to according to the island’s National Human Resources and Employment Policy.

(Colombo/ Feb 05/2023)

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Sri Lanka revenues Rs158.7bn in Jan 2023 up 51-pct

ECONOMYNEXT – Sri Lanka’s government revenues were 158.7 billion rupees in January 2023 but expenditure and debt service remained high, Cabinet spokesman Minister Bandula Gunawardana said.

In January 2022 total revenues were Rs104.5 billion according to central bank data.

Sri Lanka’s tax revenues have risen sharply amid an inflationary blow off which had boosted nominal GDP while President Ranil Wickremesinghe has also raised taxes.

Departing from a previous strategy advocated by the IMF expanding the state and not cutting expenses, called revenue based fiscal consolidation, he is attempting to do classical fiscal consolidation with spending restraint.

President Ranil Wickremesinghe has presented a note to cabinet requesting state expenditure to be controlled, Gunawardana told reporters.

State Salaries cost 87.4 billion rupees.

Pensions and income supplements (Samurdhi program) were29.5 billion rupees.

Other expenses were 10.8 billion rupees.

Capital spending was   21 billion rupees.

Debt service was 377.6 billion rupees for January which has to be done with borrowings from Treasury bills, bonds and a central bank provisional advance of 100 billion rupees, Gunawardana said.

Interest costs were not separately given. (Colombo/Feb05/2023)

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Sri Lanka’s Ceylon Tea prices down for second week

ECONOMYNEXT – Sri Lanka’s Ceylon Tea prices fell for the second week at an auction on January 31, with teas from all elevations seeing a decline, data showed.

“In retrospect, the decline in prices would be a price correction owing to the overall product quality and less interest from some key importers due to the arrival of cargo at destinations ahead of schedule,” Forbes and Walker tea brokers said.

The weekly sale average fell from 1475.79 rupees to 1465.40 rupees from a week ago, according to data from Ceylon Tea Brokers.

The tea prices are down for two weeks in a row.

High Growns

The High Grown sale average was down by 20.90 rupees to 1380.23 rupees, Ceylon Tea Brokers said.

High grown BOP and BOPF was down about 100 rupees.

“Ex-Estate offerings which totalled 0.75 M/Kg saw a slight decline in quality over the previous week” Forbes and Walker said.

OP/OPA’s in general were steady to marginally down.

Low Growns

In Low Grown Teas, FBOP 1 was down by 100 rupees and FBOP was down by 50 rupees while PEK was up by 150 rupees.

The Low Growns sale average was down by 8.55 rupees to 1547.93 rupees.

A few select Best BOP1s along with Below Best varieties maintained.

OP1                     Select Best OP1’s were steady, whilst improved/clean Below Best varieties maintained.   Others and poorer sorts were easier.

PEKOE                 Well- made PEK/PEK1s in general were steady, whilst others and poorer sorts were down.

Leafy and Semi Leafy catalogues met with fair demand,” Forbes and Walker brokers said.

“However, the Small Leaf and Premium catalogues continued to decline.

“Shippers to Iran were very selective, whilst shippers to Türkiye and Russia were fairly active.”

This week  2.2 million Kilograms of Low Growns were sold.

Medium Growns

Medium Grown BOP and BOPF fell by around 100 rupees

The Medium Growns sale average was down by 33.40 rupees to 1199.4 rupees.

“Medium CTC teas in the higher price bracket witnessed a similar trend, whilst teas at the lower end were somewhat maintained subject to quality,” Forbes and Walker brokers said.

“Improved activity from the local trade and perhaps South Africa helped to stabilize prices to some extent.”

OP/OPA grades were steady while PEKOE/PEKOE1 were firm, while some gained 50-100 rupees at times.

Well-made FBOP/FBOPF1’s were down by 50-100 rupees per kg and more at times.

(Colombo/Feb 5/2023)

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