Government has granted a generous 25-year corporate tax holiday to Colombo Port City, the Rs 172.4 billion (US$ 1.3 billion) project to reclaim more than 575 acres (233 hectares) of sea off Galle Face Green. The project company, CHEC Port City Colombo (Private) Ltd, will also be exempt from tax on dividends for 25 years [...]

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25-year corporate tax holiday for US$ 1.3 billion offshore Colombo Port City

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Government has granted a generous 25-year corporate tax holiday to Colombo Port City, the Rs 172.4 billion (US$ 1.3 billion) project to reclaim more than 575 acres (233 hectares) of sea off Galle Face Green.

The project company, CHEC Port City Colombo (Private) Ltd, will also be exempt from tax on dividends for 25 years as well, as a host of other levies for a lesser period of time. The concessions were gazetted on January 24 under Section 3 (2) of the Strategic Development Projects Act.

The move to build Colombo Port City follows an unsolicited tender from China Communications Co. Ltd (CCC). The project is more expensive than the Mattala Rajapaksa International Airport (US$ 210 million), Phase 1 of the Hambantota Port (US$ 361 million) or the Colombo-Katunayake Expressway (US$ 350 Million) put together.

The project will be in two phases. The cost of US$ 1,300 million is inclusive of the construction of a wave protection breakwater, land reclamation, ground improvement, revetment (retaining wall) as well as canals to connect seawater, artery roads and utilities. Implementation is expected to take eight years from the date the agreement is signed between the Board of Investment and the CHEC Port City Colombo.

Among other concessions granted is an exemption from withholding tax payable on the interest on foreign loans taken for capital expenditure and on technical fees paid to consultants; on management fees and royalty payments, provided the total of such charges does not exceed 3% of gross operating revenue; on marketing fees, provided the total of such fees does not exceed 1.5% of gross operating revenue; and on incentive management fees, provided the total of such fees does not exceed 10% of gross operating profit.

Up to 30 expatriate employees of the project company are exempt from ‘Pay as You Earn Tax’. This will be applicable for project implementation staff and project operational staff for a period of 10 years from the date of commencement of commercial operations. The Company is required to gradually replace expatriates with local employees “on a best efforts basis”.

The importation of project related goods and services and the local purchases of project related goods and services during the implementation period of eight years are exempt from charge and payment of Value Added Tax. This deferment is applicable for direct supplies and for supplies made to a contractor or sub-contractor. The Company shall be liable for payment of VAT on the commencement of commercial operations.

During the implementation period, the Company shall also be exempted from the Ports and Airports Development Levy, the Construction Industry Guarantee Fund Levy, Excise Duty, CESS, National Building Tax and Customs Duty on importation of project-related items.

The project falls under the purview of President Mahinda Rajapaksa who is also Minister of Highways, Ports and Shipping. He recently told ministers that the Port City will consist of luxury hotels and apartment complexes, shopping malls, space for modern offices for corporate sector, leisure and recreational activities such as yacht marinas, formula tracks, etc.

As first reported in the Sunday Times, a significant feature of the project is the granting of a portion of the land area on a 99-year lease to the Chinese firm which made the unsolicited proposal. The base price of the land is being estimated at US$ 24 million or more than Rs 3 billion.

The Sri Lanka Ports Authority (SLPA) is to be allocated 125 hectares including 62 hectares which is saleable. The SLPA is to be exempted from licence fee, royalty fees and buyers of their land will be exempt from the Property Transfer Tax (or Land Tax) and Stamp Duty. The Government will transfer the reclaimed land to the SLPA as a “free gift.”

The SLPA has, ahead of approval by the Cabinet, signed a memorandum of understanding with the Chinese firm. This was after a Standing Cabinet Appointed Review Committee (SCARC) gave it instructions.

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