Some BOI firms now selling to the local market
Several companies that secured approval under Section 17 of the Investment Board Act of 2002 to function strictly as export-oriented manufacturers have transitioned into domestic market operations inflicting significant pressure on Sri Lanka’s local industries.
These firms have been registered under the BOI (Board of Investment) Act, which offered generous fiscal and administrative concessions to attract foreign direct investment, several heads of affected aluminium fabrication, apparel, processed foods, and plastics firms complained to the Sunday Times Business.
The incentives include customs duty exemptions on imported machinery and raw materials, relief from specific levies, enhanced capital allowances, and streamlined regulatory approvals.
Through this unlawful practice, large amounts of taxes payable on the importation of machinery and equipment have allegedly been evaded.
Due to these companies, local industrialists who invested domestic capital and obtained substantial bank facilities to establish large-scale industries have faced severe difficulties, they added.
The BOI maintains strict regulatory oversight regarding registered companies catering to the local market, primarily ensuring they do not undermine domestic industries while benefiting from export-oriented concessions, a senior official of BOI said. However, analysts said the BOI has been weak in tackling this issue.
Companies established under the BOI using only large-scale foreign investments and intended exclusively for export have, without obtaining any approval from the Ministry of Finance, converted into domestic companies.
A cabinet decision in 20-11- 2023 formalised provisions enabling existing non-BOI companies to enter into Section 17 agreements with the BOI, a senior Finance Ministry official said.
Investors often seek this status for the legal protection and investment guarantees provided under the BOI framework, which are not available to standard local companies.
Local companies can also transition by transferring shares from local to foreign shareholders, provided they meet specific investment criteria, he disclosed.
Local companies must pay full customs duties on imported capital equipment and raw materials.
They are also required to comply with licensing systems overseen by the Ministry of Industry and other regulatory authorities, while absorbing VAT and additional indirect taxes throughout their supply chains.
A Tax Policy Analysis Unit (TPAU) was operationalised in early 2026 to ensure all future tax policy and exemptions are based on rigorous economic analysis rather than lobbying.
Many have financed their industrial ventures through domestic capital and large-scale bank borrowings at commercial interest rates.
When BOI-registered companies enter the local market with duty-free imports and bonded warehouse facilities where taxes are deferred until goods are used in production the cost structure differs sharply.
This advantage allows such firms greater pricing flexibility, intensifying competition for fully taxed local producers in sectors such as aluminium fabrication, apparel, processed foods, and plastics.
Over several years, they have imported raw materials required for manufacturing goods for the domestic market.
Owners of local companies connected to the relevant industry said that when importing raw materials subject to a licensing system, these entities act under the status of BOI companies.
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