The Government, responding to recommendations from the International Monetary Fund (IMF), is set to reduce extensive tax breaks and duty exemptions currently granted to strategic development projects, including the Colombo Port City.
Under the Strategic Development Project Act (SDPA), passed by Parliament in 2008, large-scale projects designated as strategic receive significant tax incentives. The Colombo Port City development falls under this legislation.
However, the Finance Ministry plans to amend the SDPA by limiting the duration of tax holidays and introducing new taxes specifically for investors in the Colombo Port City. These proposed amendments are expected to be presented to Parliament by August this year. Meanwhile, implementation of actions under the SDPA will be suspended until clear evaluation criteria for all investment proposals are established.
The IMF has expressed concerns that the extensive concessions hinder the government’s ability to generate adequate revenue and meet its debt obligations. This recommendation is part of a wider effort to stabilize Sri Lanka’s finances and manage its debt sustainably.
Currently, the Colombo Port City benefits from substantial tax exemptions, including customs duty, port and airport development levies, and value-added tax (VAT) relief.
Officials noted that the IMF is particularly worried about the broad scope of these tax exemptions, which could negatively affect government revenue and debt repayment capacity amid Sri Lanka’s ongoing economic crisis. The IMF has suggested reducing the length of tax holidays—potentially shortening the current 25-year period—and removing certain exemptions for projects that do not qualify as genuinely strategic.
An official from the Finance Ministry revealed that the planned amendments will establish transparent, rules-based eligibility criteria to enhance the effectiveness of tax incentives. Additionally, the reforms will cap the duration for which incentives can be granted under the Port City Act, aiming to strengthen the net economic benefits by the end of September 2025.
The current administration, the New People’s Power (NPP), which had pledged prior to the Presidential election to renegotiate the IMF bailout package, has opted post-election to uphold the reforms initiated under the previous Ranil Wickremesinghe-led government in alignment with IMF policies. The next IMF tranche, approximately US$344 million, is anticipated for disbursement around June-July 2025 following approval of the recent review by the IMF Executive Board.
