The Cabinet of Ministers yesterday 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) program.
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 program.
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.
Advocata Institute Chairman and JB Securities CEO Murtaza Jafferjee writing in the Daily FT yesterday said: “There is no defensible justification for granting tax concessions in the Port City. The location is already uniquely advantaged. It already enjoys location, infrastructure, and regulatory advantages. Layering tax concessions on top is both unjust to other tax payers and corrosive to the broader economy.”
Cabinet Clears Legal Path for Tax Breaks to Spur FDI and Economic Recovery
