Hambantota to be free port

New laws passed to give sweeping tax exemptions; no customs duties, no exchange control, no regulations

Laws permitting free trade -- exempt from customs, exchange control and import-export regulations -- have been passed in Parliament. The areas where free trading could take place have not been specified so far, but will be gazetted, according to the amendments made to the Finance Act on Friday.
The move comes in the wake of comments by Sri Lanka Ports Authority (SLPA) Chairman Priyath Wickrama that Hambantota would be a free port with no tax involvements.

The SLPA website quoted the chairman as saying that the users of the Hambantota Port would be allowed to use it for loading, value addition and distribution without any taxes. The exemptions will apply to BOI registered companies engaged in entrepot trade involving import, minor processing and re-export, off shore business where goods can be procured from one country to be manufactured in another country and shipped to a third country without bringing them into Sri Lanka.

It will also apply to businesses that provide front-end services to clients abroad. The other businesses that will get the exemptions are those with headquarters operations of leading buyers for management of finance supply chain and billing operations as well as those that provide logistic services such as bonded warehouse or multi-country consolidation in Sri Lanka. The enterprises that are engaged in the physical importation of goods, wares or merchandise for re-export will be required to carry out such activities in a Free Port operated under the supervision of the SLPA or a bonded area declared under the BOI law of Sri Lanka.

Opposition legislators warned yesterday that the Finance Act amendments passed in parliament on Friday to exempt BOI enterprises from certain provisions of the Customs Ordinance, the Exchange Control Act and the Import and Export (Control) Act could be misused for money laundering and smuggling of drugs into the country.

UNP National List parliamentarian and economist Harsha De Silva said amendments were also contrary to the Budget proposals in which such exemptions were given only to the apparel sector but the amendments had no such restrictions.

“If we have a wall around a compound with a gate, we can open the gate and choose who we let in. But this law will be like giving a compound with no fence so anyone can come and go as they please,” he said.

“The saving grace in the amendments is the clause that requires the relevant enterprises to ensure the proper maintenance of documentation in respect of outward and inward remittances of foreign exchange and report annually to the Controller of Exchange,” he added

However Central Bank Governor Ajit Nivard Cabraal rejected claims that these concessions could lead to money laundering.

“In the first place, we are not doing anything different to what countries like Singapore have been doing in providing concessions. Secondly, there are different ways to tackle money laundering, for example through the Central Bank’s Financial Intelligence Unit (FIU) and these laws will continue to prevail in these transactions,” he said.

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