15% upfront tax on land lease to deter foreign investors

Monday, 25 November 2013 00:32 -     - {{hitsCtrl.values.hits}}

The 2014 Budget move to slap a 15% upfront tax on lease of State or private lands to non-nationals will deter Foreign Direct Investments (FDIs), according to analysts. They said that as far as being attractive to FDI, the original move of banning sale of land to foreigners was a setback and the latest measure to impose upfront tax was a fresh blow. “At a time when FDIs are critical to achieve the Government’s envisaged 8% growth, some of the new measures are counterproductive and lessen the attractiveness as well as dim Sri Lanka’s international investor profile,” analysts opined. Officials however dismissed the possibility of any impact on the basis that overall attractiveness of post-war Sri Lanka remains intact, if not highly improved. In his 2014 Budget presentation, President and Finance Minister Mahinda Rajapaksa recalled that the Government has formulated laws to protect land resources from outright transfers to foreign ownership. “From this year, foreigners can have access to State and private land only through long-term lease arrangements. As infrastructure development has improved the value of all lands, it is necessary to implement a land lease tax structure to protect long-term value of lands. Hence a 15% upfront tax will be imposed in the event of lease of State or private lands to foreigners,” the President added. According to Central Bank’s report released coinciding with 23014 Budget, the realised foreign direct investments (FDI), including foreign loans to BOI companies, increased by 19% to $ 540 million during the first half of 2013 from $ 452 million during the same period of 2012. It said more FDI flows are expected during the second half of the year with the finalisation of negotiations and the granting of approvals for a number of projects that have been in the pipeline. “Indicating the prospects for realising new FDIs in the future, the number of investment commitments of contracted projects under FDIs increased during  the first half of 2013 from the corresponding  period in 2012,” the Central Bank said. Last year Sri Lanka attracted $ 1 billion in FDI whilst target for 2013 has been $ 2 billion. Investment Promotion Minister Lakshman Yapa Abyewardena said earlier this month that the realised FDI had already reached $1 billion and with the start of some already signed projects; Sri Lanka will be able to achieve its $2 billion FDI target for this year.