3. Businesses having relationship with the government

3. Businesses having relationship with the government

The government

The government consists of followings 

·         Central government

·         Provincial council

·         Local authorities (Urban councils, Town councils, Municipal councils)

The ways that the government’s influence occurs on businesses in Sri Lanka

Government influence	Central government	Provincial councils	Local authorities
·         By providing infrastructure	Providing electricity	Maintenance of roads	removing of waste
·         By being a competitor	Implementing government sector tv channels	Conducting businesses competitively with private sector in each provincial council.	Building up markets and renting them equally as the private sector
·         By being a customer	Buying paddy, buying various office equipment, selling through Lak Sathosa.	- Providing and receiving defence service	Maintaining cemeteries
·         By forming policies	Implementing monetary and fiscal policy	Implementing business names charter	Implementing environmental policies
·         By imposing rules and regulations	Consumer affairs authority act, standards act	Imposing rules and regulations for private buses	Passing the plans for buildings and imposing rules  and regulations.
·         By being a tax collector	Collecting tax through Inland revenue  department	– Collecting tax through provincial revenue	Collecting rates

The importance of assistance and guidance that businesses receive from the government

1.      Being forward to register businesses

2.      The goodwill of the business is being improved

3.      Contributing to the development of the country

4.      Receiving the acceptance of the government and public

A government works to achieve the following economic goals.

1.      Economic growth and development

2.      Full employment

3.      Fair income distribution

4.      Economic Stability

5.      Favorable international trade

5.

5.

1.      Economic growth and development

While economic development takes place through the continuous growth of the production process, in addition to that the long term growth of human and social indices is known as development.

2.      Full employment

Not only everyone who wishes to, provide their labor has been occupied in a service, but also a situation where all the resources have been occupied in effective production activities in an economy.

3.      Fair income distribution

Distributing of total production of a country equally among all the people in that country

4.      Economic Stability

The ability of an economy to endure nationally an internationally without a crisis is known as economic stability.

Economic stability consists of two parts.

1. Internal price stability

2. External price stability

While controlling inflation, stabilizing price level, controlling the interest rate are done through internal price stability, Stability of foreign exchange rate is done through external price stability.

5.      Favorable international trade

Protecting the state of balance of payment through conducting foreign trade activities satisfactorily is expected through this.

To achieve the economic goals of the government, businesses contribute in various ways.

1.      Payment of taxes

2.      Use of indigenous resources

3.      Following policies that the government implements

4.      Following the rules and regulations

5.      Contribution to the employment

6.      Minimize damage to the environment

1.      Payment of taxes

Paying taxes,that should be paid to the government, without evading by oneself on earned profit and income.

2.      Use of indigenous resources

Using indigenous resources for production as much as possible

3.      Following policies that the government implements

Implementing and following the fiscal and monetary policies that have been implemented by the government, in the correct way.

4.       Following the rules and regulations

Contributing to build up a favourable business environment by following rules and regulations imposed for businesses in the exact way.

5.       Contribution to the employment

Using of human and all the other resources efficiently when conducting business activities effectively

6.       Minimize damage to the environment

Conducting eco-friendly business activities by all the businesses

Government objectives	Business sector contribution towards them
·         Economic growth and development ·         Full employment ·         Fair income distribution ·         Economic Stability ·         Favorable international trade	·         Payment of taxes ·         Use of indigenous resources ·         Following policies that the government implements ·         Following the rules and regulations ·         Contribution to the employment ·         Minimize damage to the environment

 It is important to have a mutual relationship among the government and businesses. Businesses are motivated when essential facilities are rendered by the government. In the same way, through the development of businesses the goals of the government will be fulfilled. Also, because of the development of businesses the government can receive a tax income. This income can be used for the development of infrastructure and other functions. Therefore it is important to build up a mutual relationship among the government and businesses.

Fiscal policy

 The functions done by the government related to its revenue and expenditure is known as  Fiscal policy. The goals of the Fiscal policy are to protect the macroeconomic stability. The revenue of an economy received from tax and non-tax within a financial year is known as government revenue.  The total expenditure done within a year for recurrent and capital expenditure to fulfil the economic goals of a government is known as government expenditure. The budget proposal of a government reflects its Fiscal policy.

Fiscal policy can be classified as follows.

Government revenue

Tax is a must payment imposed on a person or an institute by a government or an authorized institute of a government.

Tax income can be classified as direct tax and indirect tax.

Tax that is charged on income or assets of business and has to be paid by relevant party itself is direct tax.

1.      Income tax

2.      Corporation tax

3.      Payee Tax

4.      Capital gain tax

Tax that is charged on goods and services and can be transferred to another party is indirect tax.

1.      Value added tax : The tax that is imposed on the added value of goods and services.

( Tax on added value on wholesale and retail sale, tax on added value on exports.)

2.       Excise duties : The tax that is imposed on some products produced within the country.

 (Tax on liquor products Tax on tobacco products)

3.      Customs duties : The tax charged by the customs department on importing products from foreign countries. (Tax on imported motor vehicles)

4.      Other taxes: The taxes charged from other parties apart from above taxes.

(Development tax of Barbour and airport, levy of cess, telecommunication tax)

Non tax revenue

1.      Profits and dividends

2.      Charges and fees

3.      Interest income

4.      Other (Lottery)

Government expenditure can be classified as follows.

Recurrent expenditure: Expenditures that are incurred again and again within a year to maintain continuous government services. These are known as current expenditure as well.

 Examples : Salaries and wages, payment of interest

Capital expenditure: Expenditure that are incurred for long term investment by the government.

Examples : Construction of main roads, Construction of bridges

(The composition of income and expenditure of a government may change based on the

budget proposals)

Categorize income and expenditure of the government by referring to a recent year central bank report

While government imposes different taxes at different times, it also cancels different taxes. The income that is received from taxes are spent on different projects.

Examples : Construction of roads, Construction and development of airport, development of harbor.

The impact on businesses from a government fiscal policy

1.      While imposing customs duties for imported goods, imports become limited and inland production can be improved/ inland industries can be protected.

2.      By imposing taxes on inland products the prices of goods and services may be increased.

3.      Since a government spends on infrastructure facilities, business activities are made simple.

Monetary policy

The policy that a government follows, to control the money supply of a country is monetary policy. The central bank of Sri Lanka executes monetary policy on behalf of the government. The main aim of the government monetary policy is to maintain the stability of the price of a national economy. Otherwise it is to control the inflation. Here, it is expected to maintain the stability of the price level for a long period of time. Under the monetary policy there are some instruments used to control money supply.

1.      Interest rate

2.      Open market operations (OMO)

3.      Changing statuary reserves requirements (SRR)

4.      Imposing credit limits

5.      Changing the discount rate

6.      Imposition of  credit limits.

1.      Interest rate

 The main instrument, that a government uses, to control the money supply is interest rate. The central bank identifies this also as standing facility rate. The standing facility rate is of three main parts.

          a.         Standing deposit facility rate (SDFR)

         b.         Standing lending facility rate (SLFR)

          c.         Bank interest rate

a.      Standing deposit facility rate

This is the interest rate paid when commercial banks and primary dealers invest their surplus funds in government securities.

b.      Standing lending facility rate

This is the interest rate charged by the central bank when commercial banks and primary dealers obtain funds by pledging government securities that they hold in central bank.

c.       Bank interest rate

This is the interest rate that the central bank, as a final loan provider, charges from commercial banks who have obtained loans for liquidity issues.

2.      Changing statuary reserves requirements (SRR)

The amount of deposit that commercial banks must maintain in central bank relevant to the deposits they hold in them is the statutory reserve. Changes in this percentage result in increase and decrease in money supply. A reduction in the reserve requirements will result in an increase in money supply whereas an increment in the reserve requirement will result in a decrease in money supply

3.      Open market operations (OMO)

The buying and selling of government securities by central bank is known as open market operations. When the central bank buys securities the money supply increases and when it sells them the money supply decreases.

4.       Changing the discount rate

The money supply of an economy can be controlled through changing the discount rate when the parties, who have bought government securities, discount them at commercial banks before their maturity date.

5.       Imposing credit limits.

Imposing of credit limits occurs in two ways:

·         Imposition of quantitative credit limits

 Controlling of total credit by increasing and decreasing bank credits which impact on  total money supply is known as imposition of quantitative credit limits.

Examples -: Setting minimum ratios between assets and capital of commercial banks. Setting the minimum money to be deposited when issuing Letters of credit.

·         Imposition of qualitative credit limits.

 Controlling the direction of flowing loans in an economy, in other words, motivating the  flow of loans for the sections which are aimed to be motivated and limiting the flow of loans for the sections which are aimed to be demotivated is known as imposition of qualitative credit limits

 Recommending fields for providing loans Such as for agriculture industry, Entrepreneurs etc. Showing the ways to be followed for inactive loans.

 It is a direct strategy of the central bank of Sri Lanka to control the loans as a monetary policy instrument. Here, the central bank of Sri Lanka has received the authority to quantitatively and qualitatively control the sectors such as the amount of loans that the bank system provides, the repayment time of loans and the securities that should be obtained for loans. When coltrolling the amount of loans, it is done by imposing limits for a maximum amount of loans, that a certain bank has been provided on a certain day or time, or by fixing growth rate of loans.

More over, to encourage the amount of loans provided for prior field of the economy, fixing the least amount of loans for different production sectors or fixing maximum amount of loans on consumption loans, to limit the growth of consumption loans at an inflation period, can be done.

The imposition of orders, such as the maximum time for repayment of loans and the nature or the value of securities that banks should obtain for those loans, can be done as well. At an inflationary situation, orders such as to discourage the consumption loans, to fix the shortest duration for repayment of the consumptional loans and to keep securities with higher values can be done to control the inflation.

 When implementing monetary policy it impacts on businesses in various forms.

Examples :- When the interest rate of central bank is reduced the interest rate of commercial banks is also reduced. Then the amount of loans that investors borrow increases, resulting increase in investment. Through which the production increases and the prices of goods and services decrease. Since the price of goods and services decreases, sales of businesses increase resulting in increase in profit.

When the interest rate of central bank is increased the interest rate of commercial banks is also increased. Then the amount of loans that investors borrow also decreases, resulting decrease in investment. It results in decrease in production and increase in the price of goods and services. Since the price of goods and services increase, sales decrease resulting in decrease in profits.

Consumer protection

Consumer protection is the legal cover that ensures customer receives sufficient satisfaction for the money he pays.

  Reasons for the need for consumer protection now than before

1.      The abundance of goods and services in the market.

2.      Since the increased competition, there is more space for malpractices in the  market.

3.      Market has become complex with the free trade.

4.      The deterioration of society and culture that can happen with globalization.

5.      The need for making consumers aware to avoid environmental pollution

 Advantages for consumers and businessmen from consumer protection

For the Consumer

1.      Getting an opportunity to consume products that give a value to the paid money.

2.      Being protected from trade malpractices.

3.      Since consuming quality goods and services, consumer’s health and protection is ensured.

4.      Because of the consumer protection, legal cover can be obtained at the time necessary.

5.      A suitable environment is risen for consumer to live.

For the Businessman

1.      Having supplied quality products, the consumer’s trust can be gained.

2.      The profit is increased through the increase turnover of businessman.

3.      Reduction of waste since they are produced according to standards.

4.      Being created a favorable business environment since there is no unfavorable anti-competitive practices.

Few internationally accepted consumer rights are implemented at present.

John F. Kennedy, a former president of USA, has decelerated the following consumer rights.

1.      Right to safety

2.      Right to be informed

3.      Right to choose

4.      Right to be heard

Apart from the above, consumer international has declared the following consumer rights.

5.      Right to satisfaction of basic needs

6.      Right to redress

7.      Right to consumer education

8.      Right to live in a healthy environment

 The eight consumer rights mentioned above are the internationally accepted consumer rights.

Just like consumer rights, there are consumer responsibilities also pertaining to consumers.

1.      Critical awareness

2.      Active participation

3.      Social concern

4.      Environmental awareness

5.      Cooperation

A mindful consumer attempts to select products with a value for the money he pays and products with higher standards. Similarly, he takes steps to inform the relevant authorities when the consumer rights are broken and business malpractices are taken place. Moreover he behaves as a rational consumer by protecting the environment he lives in, being concerned about society and by acting cooperatively.

 Government institution that work for consumer protection in Sri Lanka

1.      Consumer Affairs Authority

2.      Sri Lanka standards institution

3.      Measurement Units, standards and services department

4.      Central Environmental Authority

5.      Office of the Divisional Medical Officer of Health

6.      District Secretariat Office

 Consumer Affairs Authority is established to fulfill the following goals.

1.      To protect consumers against the selling of goods or the providing of services which are hazardous to the life and property of consumers.

2.      To protect consumers against unfair trade practices and guarantee that consumer interest shall be given due consideration.

3.      To ensure that, whenever possible, consumers have adequate access to goods and  services at competitive prices.

4.      To seek redress against unfair trade practices, restricted trade practices or any other formof exploitation of consumers by traders.

Functions of Consumer Affairs Authority

·         Control or eliminate restrictive trade agreements among enterpreneurs.

·         Eliminate abuse of dominant position with regard to domestic trade or economic development within the market or in a substantial part of the market.

·         Eliminate any restraint of competition adversely affecting domestic or international trade or economic development.

·         Investigate or inquire into anti-competitive practices and abuse of a dominant position.

·         Maintain and promote effective competition between persons supplying goods and services

·         Promote and protect the rights and relationships of consumers with respect to the price, availability and quality of goods and services.

Consumer Affairs Authority is important for businesses in the following manner.

·         Since production, supply, storing, transporting and selling take place according to the standards that are imposed by the authority, profit increases while the waste is being reduced.

·         Consumer trust is gained for focusing on protecting consumer rights.

·         The image of the institute grows since business malpractices are avoided.

·         Minimization of legal situations that businessman has to face.

·         Minimization of unwanted competition among businesses.

·         Ability to compete fairly since no monopoly conditions are created.

The aims of Sri Lanka standard institution.

·         Prepare standards on the national and international basis in relation to production process and processing.

·         Promote standardization and quality control in industry and commerce and establish  and maintain laboratories and library services for that purpose.

·         Examine whether the locally produced and imported goods comply with the standards.

·         Provide research facilities for the acvities of standardization and quality control.

·         Implement a certification marks scheme.

·         Provide for co-operation with international standards institutions and other similar organizations.

·         Promote standardization and quality control activities through education, guidance and other means

Functions of Sri Lanka standards institution.

1.      Formulates standards

2.      Implements standards

·         Voluntarily

·         SLS certification system

·         Pre export investigation

·         Import investigation

·         Examination of sea food prepared for export

3.      Implementing ISO standards 

4.      Organizing training programmes on standardization and quality control

5.      Promoting standardization and quality control activities

6.      Numeration services for equipment

7.      Popularizing consumer education

8.      Library services, sale of local and foreign standards and information services

9.      Implementing international standards on quality system

Sri Lanka standards institution is important for businesses in the following manner.

·         Ability to face competition through selling products with SLS mark.

·         Ability to acquire advantages by overtaking production companies that do not possess SLS mark.

·         Ability to minimize customer complaints.

·         Ability to expand market share since government come forward to buy products that are with SLS mark.

·         Ability to succeed in international trade through obtaining ISO certification.

·         The acceptable level of product increases since consumer needs and legal need are included in standards.

·         Increasing the productivity while minimizing the waste.

·         ·By improving the image of company, the morale of employees also improve.