Cutting Colombo Port City tax breaks under IMF pressure
The Government, acting on an International Monetary Fund (IMF) recommendation, is planning to cut massive tax breaks and duty exemptions for strategic development projects including the Colombo Port City.
The Strategic Development Project Act (SDPA) passed in parliament in 2008, provides tax incentives for large projects deemed strategic. The Colombo Port City projects are included under this Act.
However the Finance Ministry now plans to limit the duration of tax holidays granted under a SDPA introducing certain amendments, and also introduce certain new taxes for investors of the Colombo Port City.
The amendments to the SDPA Act are planned to be presented in parliament by August this year and the actions under the Act will be suspended until explicit criteria are established to evaluate all investment proposals.
The IMF says such concessions would restrict the country’s ability to raise sufficient revenue and service its debt, and the recommendation is one of the aspects of a broader attempt to allow Sri Lanka to stabilise its finances and retire debt in a sustainable way.
The Colombo Port City has been awarded substantial tax concessions in the form of an exemption of customs duty, port and airport development levies, and value-added tax (VAT).
Officials said the IMF is concerned the wide range of tax exemptions would have a negative impact on the revenue earnings and debt repayment ability of the government, especially in the context of Sri Lanka’s ongoing economic crisis. It has recommended that Sri Lanka reduce the length of tax holidays, perhaps reducing the period from the existing 25 years to a shorter duration.
It also suggested removing certain tax exemptions, especially for projects that are not considered truly strategic development projects.
The proposed amendments will introduce transparent, rules-based eligibility criteria to increase the effectiveness of granted tax incentives and to limit the duration for which incentives can be granted under the Port City Act to strengthen the net economic benefit by end-September 2025, an official of the finance ministry disclosed.
The present administration –NPP – which had promised before the Presidential poll to rework the IMF’s bailout package – however, after the poll, decided to continue the decisions and reforms taken during the Ranil Wickremesinghe-led government, in adherence to the IMF policies. The next disbursement of the IMF installment of around US$ 344 million – after the IMF executive board ratifies the recent review by an IMF team – is due by around June-July 2025.
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