Sri Lanka looking at changing law to revive FDI with tax incentives
Daily FT: The Cabinet of Ministers has approved amendments to the Mahinda Rajapaksa-era Strategic Development Projects Act to enable tax incentives to attract Foreign Direct Investment (FDI) for large-scale projects, thereby circumventing limitations on tax incentives under the International Monetary Fund (IMF) programme.
Cabinet Spokesman and Minister Dr. Nalinda Jayatissa said the Attorney General has cleared the draft, which will now be gazetted and tabled in Parliament.
The move comes as the Government seeks to revive major investments, including the $ 3.7 billion Hambantota oil refinery and Port City projects, both of which had been delayed due to the absence of tax concessions under existing laws.
The IMF has previously cautioned that tax exemptions have contributed to weak Government revenue performance, but the Government is proceeding with limited, project-specific incentives to attract strategic investment.
Dr. Jayatissa said the amendments are intended to support capital-intensive projects that are critical for the country’s economic recovery while maintaining fiscal discipline under the IMF programme.
Both the World Bank and Human Rights Watch have warned of the adverse economic and social consequences of offering tax concessions and long-term tax holidays, noting that such policies can weaken public finances, distort fiscal equity, and push people towards poverty.
OSL take:
Sri Lanka is focused on attracting more FDIs to the country and many programmes have been introduced to support this endeavor. Local authorities are engaged in promotional campaigns in many foreign countries while also working to further strengthen and expand Sri Lanka’s trade and investment ties with many foreign countries. Also, the Sri Lankan authorities have continuously worked on improving the ease of doing business environment in the country to assist foreign businesses/investors exploring business/investment opportunities in Sri Lanka. It is in such a backdrop that the Sri Lankan government is looking at introducing more incentives to encourage foreign businesses/investors to explore the many business/investment opportunities emerging in a country that is fast becoming a hub in the South Asian region. Sri Lanka’s geographical positioning in the Indian Ocean and the many trade agreements as well as trade concessions enjoyed with many foreign countries have also helped boost Sri Lanka as a business destination in the region. With Sri Lanka on a development trajectory and projects like the Colombo Port City, the country’s growing business potential ensures foreign businesses/investors of lucrative businesses that would continue to revolve along with Sri Lanka’s steady growth.