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FINANCIAL CHRONICLE™ » DAILY CHRONICLE™ » Black economy gobbles up US$ 3bn annually

Black economy gobbles up US$ 3bn annually

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1Black economy gobbles up US$ 3bn annually Empty Black economy gobbles up US$ 3bn annually Wed Sep 05, 2012 12:23 am

Redbulls

Redbulls
Director - Equity Analytics
Director - Equity Analytics

* Importers’ under invoicing denies govt. Rs. 100 billion in revenue, says retired senior banker
* Has solution to save at least US$ 1bn from the black market


A retired senior banker says Sri Lanka loses nearly US$ 3 billion in foreign exchange each year from private remittances and a further Rs. 100 billion in taxes and duties from importers under invoicing bills because the state was not doing enough to curb a thriving black economy in the country.

"The Sri Lankan population working abroad is estimated to be around 1.9 million in 2010. Based on that, average annual earnings are around US$ 8.7 billion. Even after excluding 20 percent of this (US$ 1.74 billion) on personal expenditure in their respective countries, Sri Lanka should get at least US$ 6.96 billion. But we have received only US$ 4.1 billion in 2010. Where did US$ 2.86 billion go? Consequently, this further verifies the estimation made by the Central Bank that 30 to 40 percent of foreign exchange is leaking in to the informal system," Retired People’s Bank Deputy General Manager Wasantha De Silva told The Island Financial Review.

"This figure could be much more in 2011, but there is no way of calculating the exact figure due to the non availability of official statistics. This amount is sufficient to finance the balance of payments deficit, and create a surplus to contribute significantly to the country’s development," De Silva, whose banking career spanned 40 years, said.

"In addition, looking at the trends in real estate markets, remittances from the Sri Lankan Diasporas via informal channels could be around US$ 500 million. Moreover, another US$ 100 million is leaking in to the informal sector through activities connected to tourism.

"Due to these large amounts of foreign exchange cheaply available in black market, there is a thriving nexus between importers to under invoice their import bills to escape paying their due taxes, amounting to something more than Rs. 100 billion each year. This is a momentous loss to the state coffers. The foreign exchange offenders caught every year in the customs’ net is only a fraction and indicates only the tip of the iceberg," De Silva said.

"To overcome this situation, the only way out is to provide monetary incentives to migrant/expatiate workers who depend exclusively on our banking system. In order to do that, an attractive package of prizes in the form of a strategically marketed lottery is the need of the hour. If it is designed and marketed in the optimum way to maximize the benefits to people, at a minimum cost, the foreign exchange earners have a larger incentive to use the formal banking system rather than choosing informal channels," De Silva said.

He suggests that the Central Bank or Treasury should adopt this strategy which would cover the entire banking system.

"I believe we could attract a further US$ 1 billion into the formal banking system. I pioneered a similar scheme for the People’s Bank in 2005 which brought in additional foreign exchange amounting to Rs. 1.8 billion in a single year. A concerted effort by the banking industry can have significant results and this is something I hope the government would take seriously," De Silva said.

He has already worked out a blue-print for the lottery and hopes to share it with the authorities.
http://www.island.lk/index.php?page_cat=article-details&page=article-details&code_title=60781

UKboy

UKboy
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics

Smile
This is exactly how most of the Sri Lankans in UK send money to Sri Lanka. I'm 99.99% sure that Sri Lankans in here do not use the formal banking system as banks offer a less exchange rate than some private agents who transfer money in less than 48 hours.

Savantha Denipitiya


Equity Analytic
Equity Analytic

PC House Rishan, LOLC and Ishara Nanayakkara, Browns Group and Ajith Devasurendra, Aloysius Mudalaali's Free Lanka Capital cartel is under-invoicing a lot they gobble peoples money in a big way and gobbles government money too that should be paid as taxes.

Hawk Eye

Hawk Eye
Expert
Expert

Before the banking system,the police and legal system should be put in to place to work independently. Everything will fall in to place



UKboy

UKboy
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics

the problem is banks offer 4 or 5% less than these dodgy agents who connet with businessmen in Sri Lanka.
When the UK banks offers Rs 200 per pounds (£), These agents offers Rs 209 per GB pound (£). So you tend to go for them.
It is easy as well because you just need to transfer the money (online) to the agent and just let them know your account details in Sri Lanka. Generally they are quite reliable.

D.G.Dayaratne


Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics

Mr Wasantha silva's proposal is excellent

Why Mr kurunajeewa (Peoples Bank) can't imperilment this proposal

If the loss is 30% to 40% why can't give 10 % more to families of poor workers That money also will go to rural sector

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