Businesses moving to other countries amidst tax hike

The general dreariness in the economy inflated by the twin forex and fuel crises along with the looming tax hike of 30 per cent in corporate tax is pushing companies to shift their businesses and main offices to other countries. More and more companies are looking out to set up their businesses in other countries and those outbound are gaining traction, analysts say.

Certain firms with international operations are moving their head offices to countries like Singapore, Ravi Abeysuriya Chair / Director CFA Society Sri Lanka said.

The corporate tax rate in Singapore is at 17 per cent making it more attractive than Sri Lanka which has increased its tax rate to 30 per cent from the earlier 24 per cent.

Increasing the corporate tax was the last straw, a tax consultant told Business Times on Wednesday noting that certain companies are reducing commitments in Sri Lanka and restarting them in countries like Singapore and Bangladesh.

A prominent corporate leader said some firms are opening businesses in Singapore, transferring the current shares to their new companies and starting afresh.

With a company headquarters based in Singapore and close to growth markets in Asia, it is easier to attract investors, Mr. Abeysuriya said. A business analyst pointed out that the legal system in Singapore is recognised for its fairness, integrity, and efficiency unlike here. “Legal proceedings in Singapore may take 12 to 18 months to solve. This makes a big difference for companies, especially at this time with Sri Lanka going through so many issues.”

Mr. Abeysuriya pointed out that with a big exodus of talent from Sri Lanka happening currently, firms may want to locate elsewhere to attract better talent. “Countries such as Singapore attract the world’s best talent. There is a favourable tax regime, low crime rate, and stable economic and political system.”

Certain large conglomerates are also shifting their energy projects to East Africa. With these efforts they are also landing new business opportunities in Renewable Energy, a company chairman told the Business Times on Wednesday.

Most manufacturers find it prohibitive to import raw materials to manufacture their goods owing to the import controls and low foreign exchange.

The latest to shift out is the drug manufacturer, GlaxoSmithKline, or GSK.

Sunder Ramachandran, GSK Country Head – Sri Lanka in a communication to employees, outlined GSK’s plans to restructure operations in Sri Lanka and move to a direct distribution model.

“As a result of this change, our local operating company office in Nawala, Colombo will transition to close its operations in 2023 and the continued supply of GSK products will be undertaken by a third-party distributor. This announcement follows a recent review of our business, which showed that a move to a direct distribution model would ensure we stay competitive and can continue to meet patient needs. It’s important to emphasise that we will continue to supply our needed medicines and vaccines in Sri Lanka. Healthcare professionals will be able to continue prescribing our medicines in the same way, but we will no longer undertake promotional activities in Sri Lanka effective immediately,” the statement said.

Big businesses earning in dollars are not reinvesting in Sri Lanka as there is no business sense to do so anymore, an industry analyst said.

Firms that directly export, especially in the apparel sector are shifting their businesses to Singapore and setting up business houses there as it is easy to buy input raw materials in Singapore as there is no forex crisis. “The main issue in the country is the energy crisis. We cannot continue to do business with this type of uncertainty,” a businessman said noting that he is making inroads into Africa with his business.

An economist said that medium-sized companies which did not have an inkling of an idea to go overseas are now trying to do so. “Firms in electrical devices, processed food and beverage, medical devices, and even small tourism firms are trying to venture out overseas either for setting up new plants, mergers, or shifting their businesses entirely,” he said.