Govt. tightens Port City incentives to align with IMF program

Wednesday, 24 September 2025 00:22 - - {{hitsCtrl.values.hits}}

Sri Lanka has overhauled the incentive regime for the Colombo Port City Special Economic Zone, cutting back generous tax holidays and raising investment thresholds in line with its IMF-backed fiscal reforms.

The new framework, published in a gazette on 20 September, replaces the previous rules that lapsed in August and will be in force for five years. Issued by President Anura Kumara Disanayake in his capacity as Finance Minister, the regulations scale down exemptions that once ran as long as 25 years.

Under the new rules, a project must qualify as a ‘Primary Business of Strategic Importance’ to secure tax benefits. Investment and employment thresholds have been raised significantly: Projects investing $ 100 million, $ 500 million, or $ 1 billion and employing at least 300 workers qualify for 10-, 12-, and 15-year income tax holidays respectively.

A fourth category covering marina and social infrastructure developments sets a lower bar of $ 25 million and 100 jobs, with an eight-year exemption. All tax holidays begin only after the project implementation phase, which can take four to eight years.

The new framework represents a steep pullback from the earlier 25-year tax holidays and additional concessions that applied afterwards. Exemptions from VAT have also been removed, though relief under laws such as the Customs Ordinance and Ports and Airports Development Levy will still apply during the construction stage.

Secondary Businesses of Strategic Importance, meanwhile, will no longer enjoy long tax holidays. Instead, they will be taxed at a concessionary rate of 7.5% for four years after operations begin, before shifting to standard corporate tax rules. The Port City Commission will retain discretion in designating these entities, though all quantitative and qualitative eligibility criteria have been scrapped.

The move reflects the Government’s effort to rebalance investor incentives with revenue mobilisation, a central element of its IMF program. Analysts say the overhaul is designed to steer the project towards attracting larger, higher-value investments while reducing the fiscal cost of broad-based tax exemptions.