RIGID TYRE PROJECT UNDR FIRE
Rs 90,000 Million benefits granted!
“MALIK DEMONSTRATED SOLICITOUS CONCERN AND PERSONAL INTEREST MOTIVATED BY COLLATERAL AND OR EXTRANEOUS CONSIDERATIONS”
The Ven Jinananda Thero of Malabe has instituted a writ of Certiorari against the BOI, senior officials of the BOI, Minister Malik Samarawikrama, Rigid Tyre Corp, Nandana Lokuvithana, the Cabinet of Ministers and others in connection with the establishment of a tyre production facility in Sri Lanka. The petitioner has raised doubts as to the concessions granted to the investors and states that far reaching concessions have been ‘afforded to highly suspect individuals with little or no credentials’.
The main prayer the petitioner seeks is redress from the Court against the ‘heinous tax concessions, advantages, land and other approvals given by the BOI to Rigid Tyres which he states shall cause a fiscal loss exceeding Rs 90 Billion (Rs 90,000 million) to the exchequer (Treasury)”.
The petitioner also states that Nandana Lokuvithana and Malik Samarawikrama maintain a close relationship and that the Minister Samarawikrama has held position as Director of a company named Spevil Ceylon which is owned and operated by Nandana Lokuvithana.
The petitioner claims that he verily believes the BOI granted such concessions and benefits to Rigid Tyres due to the ‘undue influence exerted by the BOI by the Minister’. Significantly the petition claims that such benefits of such magnitude would not have been granted by the BOI if not for Samarawickrama’s influence.
In November 2016 the Cabinet had approved Rigid Tyre to be free of income tax for a period of 12 years and permission was granted to sell 20% of production in the local market. Presumably without any taxes accruing to the state for at least 12 years.
In order to get these benefits Rigid Tyres were required to ‘infuse’ capital of USD 75 million, with up to USD 25, million maybe sourced as a foreign loan capital and that 80% of production to be exported.
However in April 2016 – seven months before Rigid Tyres received their concessions – the Finance Minister (Ravi Karunanayake) sought and received Cabinet approval to do away with tax concessions to investors and importantly took away the right of the BOI to grant such concessions in terms of taxes. It is a well-known secret that there is no love lost between Malik Sam and Ravi K.
Be that as it may, Ravi K’s thinking echoed a departure from granting concessions that hardly brought any revenue to the state in the short and medium term. Karunanayake made the somewhat astute observation that such concessions were not only ineffective but resulted in a tax regime that was inefficient, non-transparent and unfair. One could almost hear the commercial world give Karunanayake a standing ovation.
However even five months after Karunanayake got approval for the new system, Samarawikrama persisted in seeking Cabinet approval for Rigid Tyres concessions and in his persuasions stated that such concessions would be dependent and conditional on the investment of USD 75 million.
Somewhat bizarrely the experienced businessman that Samarawikrama is, has not made reference or been specific about, the makeup of the USD 75 million. That ambiguity has played a role in this matter coming before the courts and is almost central to the plea by the petitioner.
It is claimed that the petitioner has copy of the Finance Ministry observations on the cabinet proposal made by Samarawikrama wherein Minister of Finance has stated his inability to grant Rigid Tyres a 12 year concession citing WTO commitments.
One of the principal bones of contention is the ambiguity in the makeup of the investment of USD 75 million. The petitioner claims that there is nothing in there to indicate that all or part of the USD 75 million could be in the form of fixed assets and or machinery and or equipment. Certainly there is no mention of used or second hand equipment.
The BOI though do make such mention stating that if the items are used then it should be accompanied by a certificate from an international consultant. If that too has somehow been forgotten the agreement states that the investor (Rigid Tyres) would be liable to customs duties and or other levies on the importation of plant machinery and equipment.
The point though is that at least for the past five years, there has been no import duty on plant machinery and equipment. Therefore the said ‘penalty clause’ amounts to no penalty at all!
The petition also states that the investor is trying to bring in equipment from a closed down operation in Italy (in 2011) and that the value of such equipment was advertised with the factory for USD 26 Million – a far cry from the USD 56 Million the BOI was contemplating allowing Rigid Tyre to bring in the form of plant as part of its USD 75 Million so-called investment.
The claim is that the investment is being over-valued via a supplementary agreement to the tune of USD 225 million (instead of the value of USD 26 Million) in an attempt to deceive not only the BOI but also state authorities like the Inland Revenue Department.
