Port City tax breaks spark IMF concerns amid reform promises
In a move that has sparked renewed scrutiny, the Government has granted sweeping tax exemptions to four companies operating under the Colombo Port City project, despite earlier assurances to the International Monetary Fund (IMF) to suspend such incentives until a transparent legislative framework is enacted.
Extraordinary gazette notifications 2445/2 through 2445/5, issued by President Anura Kumara Dissanayake on July 14 in his capacity as the Minister of Finance, Economic Stabilisation, and National Development, has granted tax exemptions under the Inland Revenue Act for a period of 35 years to four companies operating within the Colombo Port City.
All income, profits, and dividends distributed will be exempted from all taxes specified under this Act for the first 25 years and all payments made shall be exempted from the Withholding Tax specified under this Act for the first twenty-five years;
After the end of the aforesaid 25 year period, 50 per cent incentive from the prevailing corporate tax rate specified under this Act will be given for a period of 10 years.
Ceylon Real Estate Holdings (Pvt) Ltd (licensed on May 3, 2024), Clothespin Management and Development (Pvt) Ltd (licensed on March 28, 2025), IFC Colombo (Pvt) Ltd (licensed on August 21, 2024) and ICC Port City (Pvt) Ltd (licensed on April 4, 2025) are the companies that are eligible for tax relief.
These companies have been classified as “Authorised Persons” and “Businesses of Strategic Importance” and shall be entitled to long-term corporate income tax exemptions, VAT exemptions, customs duty exemptions, dividends tax exemptions, and exemptions of personal income tax for foreign employees.
This decision comes in direct contrast to Sri Lanka’s commitments under the IMF’s Extended Fund Facility (EFF), where the government agreed to suspend all new tax exemptions under the Port City and Strategic Development Projects (SDP) Acts until new, rules-based frameworks are introduced.
According to the IMF’s Fourth Review Staff Report (July 2025), the government has committed to not issuing additional exemptions under the outdated laws and bringing amendments to the Port City and SDP Acts to the House by October 2025 with the aim of enhancing transparency, accountability, and alignment with fiscal reform goals.
The IMF previously stated that discretionary tax relief had led to revenue losses, corruption risk, and investor mistrust, requiring the complete overhaul of exemption policy by appropriately set criteria and time limits.
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