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Sri Lanka plans stronger investment guarantees amid Venezuela-style land move

ECONOMYNEXT – Sri Lanka planned to place stronger constitutional guarantees to protect property rights, a top official said, while a budget for 2017 planned a break up large farms in a Venezuela-style move undermining property rights of the people.

Planned changes to Sri Lanka’s constitution will contain strong investment guarantees that will protect investors, Upul Jayasuriya, Chairman of Sri Lanka’s Board of Investment told a tourism forum in Colombo.

He said in recent years, foreign investors were asked to pay a 15 percent tax even when land was leased, but the new administration was relaxing it.

The ousted Rajapaksa administration also expropriated a number of domestic and foreign firms, despite the existence of a constitutional guarantee.

The constitutional guarantee was brought as part of reforms made in 1979 to draw foreign investors, who are expropriated after independence by socialist and nationalist ideologists.

Among those hit by the Rajapaksa expropriation was an investor key backer of the current administration, Daya Gamage, who is now a minister.

Two listed companies were also expropriated hurting even small investors.

None of the properties have been returned to the original owners. Shareholders of the firm have not been compensated.

The current administration soon after coming to power in 2015 dealt another blow to the investment environment by charging massive retrospective taxes from larger firms, claiming that they had ill-gotten gains during the last regime.

The budget for 2017 also said listed companies controlled by foreigners would be allowed to keep their freehold land. Foreign controlled companies would also be allowed to lease new land, but subject to conditions.

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However the budget for 2017 also proposed a break up of large farms. The tea and rubber faming companies were themselves expropriated from citizens and foreigners decades ago, and was a key reason for the original constitutional guarantee against expropriation.

They were privatized in the 1990s through long term leases after they made losses and became burden to tax payers.

The budget for 2017 claimed that the "performance has been erratic, with investments in modern equipment and agricultural practices in RPCs being inadequate with, misuse of the assets and hence productivity remaining to be a worrisome issue."

Claims of ‘erratic performance’ are frighteningly similar to the claim of ‘underperforming’ enterprises made against investors like Gamage by the last administration, observers say.

Economists have said that a key problem facing crop diversification and better utilization of the farms – called plantations in Sri Lanka’ is a so-called ‘Golden Share’ held by the government where state approval is required for sub lease and other changes, which are pending.

Breaking up and expropriating farmland has been a favourite tactic of authoritative socialist and fascist leaders ranging from Venezuela’s’ Hugo Chavez to Zimbabwe’s Robert Mugabe.

Venezuela is expected to record 700 percent inflation this year.

The Board of Investment itself and Sri Lanka’s Urban Development Authority also have draconian powers allowing the rulers to take over private land for commercial use, critics say.

These powers and their use, go beyond the so-called ’eminent domain’ provisions used for public projects in freer countries with stronger property rights, liberty advocates say.

To strengthen property rights the ability of the state to take-over land for commercial purpiases should also be removed, liberty advocates say. (Colombo/Dec02/2016)

 

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