News
President issues gazette, pruning Port City tax concessions
View(s):By Namini Wijedasa
In accordance with the International Monetary Fund’s (IMF) guidelines, President Anura Kumara Dissanayake, in his capacity as Finance Minister, has issued a gazette reducing the duration and scope of tax exemptions and incentives granted to businesses investing in the Colombo Port City.
The revision applies to both “primary businesses of strategic importance” (PBSIs) and “secondary businesses of strategic importance” (SBSIs), representing a reduction in the incentives granted through the last regulations gazetted in August 2023.
As such, the corporate income tax exemption duration for PBSIs—which was 25 years followed by a further 10-year period at a 50% corporate tax rate—has been cut to a maximum of 15 years. Under the previous regulations, SBSIs received exemptions or incentives for a duration of 25 years. This has been replaced by a four-year leg of concessional taxation (7.5%), which means the tax is still paid but at a low rate.
In 2023, the government committed to the IMF to amend the Port City Act in consultation with IMF staff to introduce “transparent, rules-based, best-practice-aligned eligibility criteria for time-bound incentives”.
It was also agreed to refrain from granting tax exemptions or incentives and to evaluate all tax incentives, weighing their benefits against their costs. Exemptions, it was held, were being granted with no specific or transparent criteria or process to select the projects that benefited from them. A commitment was made (through a letter of intent) to float new frameworks for such exemptions, to reduce corruption vulnerabilities, and to strengthen tax policy.
Between January and September 2024, however, “the authorities issued exemptions to 24 companies under the current Port City Act without consulting IMF staff, despite their commitments to undertake such consultations,” the IMF country report issued in August 2025 states.
But the 2023 regulations expired last month, and a new gazette covering fiscal and tax incentives was published last week. The government is also drafting amendments to the Port City Act.
Among other things, the 2025 regulations change the date of commencement of exemptions (for PBSIs) from the “date of publication of an Order in the Gazette” to “upon expiry of the Project implementation Period” (the maximum implementation period ranges from four to eight years). Consequently, exemptions start later, after the project development phase concludes.
Separately, SBSIs, under the 2023 gazette, were entitled to 25 years of non-income tax exemptions under thirteen enactments set out under Schedule II of the Colombo Port City Economic Commission Act No. 11 of 2022. These include the Inland Revenue Act, the Value Added Tax Act, the Finance Act, the Excise (Special Provisions) Act, the Customs Ordinance, the Ports and Airport Development Levy Act, the Casino Business (Regulation) Act, and so on.
The 2025 gazette, however, limits the exemptions to just the Customs Ordinance, the Ports and Airports Development Levy Act, and the Sri Lanka Export Development Act. As such, the comprehensive 25-year concession is replaced by exemptions for a few specific acts, starting from the commencement of commercial operations. This also ensures that there are no exemptions on the payment of VAT.
Last week’s gazette also increased the minimum required investment amounts for most categories of PBSIs compared with the 2023 regulations. These amounts are also now coupled with mandatory employment creation requirements. Under the previous gazette, there were two investment thresholds for PBSIs: the standard investment, which was a minimum of US$ 100mn per plot of land, or the pro-rated equivalent; or the social/marina investment, which was a minimum investment of US$ 25mn in plots for the marina or social infrastructure.
The 2025 regulations introduce four groups. Category A mandates an investment of US$ 100mn with a minimum of 300 employment opportunities (the amount remains the same as the 2023 “standard investment”, but the minimum employment requirement is added).
Category B mandates a US$ 500mn investment and 300 jobs, which is five times higher than the standard investment of 2023. For Category C, the investment required is US$ 1000mn (ten times higher) with 300 jobs. And category D is US$ 25mn and 100 jobs (the investment amount remains the same as the 2023 social/marina investment category, but the creation of 100 employment opportunities is new).
“These strategic reforms are designed to overcome historical project challenges that had impacted investor sentiment and development pace,” a press release on the Colombo Port City Economic Commission website said this week. “In response, the government has taken decisive action to resolve legacy issues and recalibrate the project in line with international standards.”
It said this “recalibration” is “guided by technical insights and recommendations from the IMF”.
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