In line with the International Monetary Fund’s (IMF) guidelines, President Anura Kumara Dissanayake, in his capacity as Finance Minister, has issued a new gazette revising the duration and scope of tax exemptions and incentives for businesses investing in the Colombo Port City.
The revisions apply to both “primary businesses of strategic importance” (PBSIs) and “secondary businesses of strategic importance” (SBSIs), reducing the incentives that were granted under the previous regulations gazetted in August 2023.
Changes to Corporate Tax Exemptions
Under the new framework, corporate income tax exemptions for PBSIs have been cut from 25 years, followed by an additional 10 years at a 50% corporate tax rate, to a maximum of 15 years. For SBSIs, the earlier 25-year exemption has been replaced with a four-year concessional tax period at 7.5%, meaning businesses will still pay tax, albeit at a reduced rate.
IMF Commitments and Non-Compliance
In 2023, the government pledged to the IMF that it would amend the Port City Act, introducing “transparent, rules-based, best-practice-aligned eligibility criteria for time-bound incentives.” Authorities also committed to refraining from granting tax exemptions without proper evaluation, citing concerns that past concessions lacked transparency and risked corruption.
However, between January and September 2024, 24 companies were granted exemptions under the Port City Act without prior consultation with IMF staff—despite the government’s commitment to do so, the IMF country report issued in August 2025 revealed.
The 2023 regulations expired last month, leading to the publication of a new gazette covering fiscal and tax incentives. Draft amendments to the Port City Act are also currently in preparation.
Key Regulatory Adjustments
The 2025 regulations also change when exemptions commence. For PBSIs, they now begin only “upon expiry of the Project Implementation Period” (ranging from four to eight years), instead of at the date of gazette notification. This means exemptions will take effect only after the project development phase is complete.
For SBSIs, the scope of non-income tax exemptions has been significantly reduced. Under the 2023 gazette, SBSIs enjoyed 25 years of exemptions under 13 enactments, including the Inland Revenue Act, Value Added Tax Act, Finance Act, Excise (Special Provisions) Act, and the Casino Business (Regulation) Act, among others.
The 2025 regulations narrow these exemptions to just three acts: the Customs Ordinance, the Ports and Airports Development Levy Act, and the Sri Lanka Export Development Act. Consequently, businesses will no longer enjoy VAT exemptions, and concessions will commence only from the start of commercial operations.
Stricter Investment and Employment Requirements
The new gazette also raises minimum investment thresholds and introduces mandatory employment creation criteria for PBSIs.
Category A: Minimum investment of US$ 100 million with 300 jobs (same as 2023 investment threshold, but with added employment requirement).
Category B: Minimum investment of US$ 500 million with 300 jobs (five times higher than 2023).
Category C: Minimum investment of US$ 1,000 million with 300 jobs (ten times higher than 2023).
Category D: Minimum investment of US$ 25 million with 100 jobs (same investment as 2023 marina/social category, but with added employment requirement).
Government’s Position
According to a press release on the Colombo Port City Economic Commission website, these reforms aim to “overcome historical project challenges that had impacted investor sentiment and development pace.” The statement further noted that the government is “taking decisive action to resolve legacy issues and recalibrate the project in line with international standards,” guided by IMF technical insights and recommendations.
