Sri Lanka is set to introduce a competitive and rules-based tax framework for large-scale investors, following discussions with the International Monetary Fund (IMF). Board of Investment (BOI) Chairman Arjuna Herath confirmed that the new regime will target projects exceeding 50 million US dollars.
The move comes after the government suspended long-standing tax holidays of up to 20 years under the Strategic Development Project (SDP) Act. These holidays were criticized for allowing arbitrary, negotiated taxes that lacked transparency. The IMF-backed reforms aim to restore confidence among investors by establishing clear and predictable tax policies.
“We have worked closely with the IMF to implement SDP project concessions,” Herath said. “Projects over 50 million dollars will benefit from attractive concessions based on thresholds, making Sri Lanka more competitive.” The reforms will also end the practice of tax-free salaries for senior executives in SDP companies.
Currently, Sri Lanka imposes a 30 percent corporate tax rate, higher than the 20 percent rates in East Asian nations such as Vietnam and Cambodia. Herath highlighted that countries with monetary stability, including Singapore and Cambodia, maintain competitive environments with stable inflation and minimal currency crises, enabling them to offer investor-friendly regimes without arbitrary tax interventions.
Sri Lanka has historically experienced balance of payments crises that often led to ad hoc tax hikes. The first major crisis occurred in 1952/53, prompting income and import tax increases. Tax holidays were previously suggested by the Central Bank to offset uncompetitive taxes. Presently, global trends, including US pressure on countries with low corporate taxes, are influencing Sri Lanka’s new strategy, aiming for fiscal stability and international alignment.
Latest SDP and Mega Project Investments: In the first half of 2025, Sri Lanka approved over 12 projects qualifying as SDPs, totaling investments exceeding 800 million US dollars. Major sectors attracting investment include renewable energy, port infrastructure, IT parks, and manufacturing hubs. The government’s intention is to provide streamlined concessions to encourage further foreign investment, ensuring that large-scale projects benefit from a transparent and competitive tax framework.
