By: Staff Writer
July 27, Colombo (LNW): Sri Lanka’s move to grant sweeping tax exemptions to four companies developing major projects in the Colombo Port City has drawn attention amid commitments made to the International Monetary Fund (IMF) to reform the country’s investment incentive framework.
Under Extraordinary Gazette notifications dated July 14, 2025 (Nos. 2445/2 to 2445/5), the four firms were designated as “Authorised Persons” and their developments labeled “Businesses of Strategic Importance” under the Colombo Port City Economic Commission Act. This designation qualifies them for generous tax concessions spanning up to 35 years, raising concerns over consistency with fiscal reforms pledged under Sri Lanka’s ongoing IMF program.
The Scope of Tax BenefitsAll four companies will enjoy full exemptions from:
Corporate Income Tax, Withholding Tax, and Dividends Tax for 25 years
VAT, Customs Duties, Excise Duties, PAL, and other import/export levies for 25 years
A reduced income tax rate of 50% for the following 10 years
Exemptions from employment-related levies and exchange control laws
The tax holidays under the Inland Revenue Act are valid until July 2060, while others extend until 2050.
Projects and Local Collaborations
1. Ceylon Real Estate Holdings (Pvt) Ltd
A subsidiary of Browns Investments PLC (under LOLC Group), this company will develop a USD 411 million mixed-use business and residential hub on Plot 1-02-01, including office towers, retail areas, and luxury apartments. Land cost alone totals LKR 32.15 billion. It expects to generate thousands of jobs and host global service industries.
2. Clothespin Management and Development (Pvt) Ltd
A Sri Lankan-incorporated entity believed to be connected to Middle Eastern investors, it will develop the iconic “Clothespin Towers” on Plot 2-01-11. The USD 540 million twin-tower development will feature a seven-star hotel, upscale residences, and what is promoted as the world’s largest art gallery.
3. IFC Colombo (Pvt) Ltd
Fully owned by CHEC Port City Colombo (Pvt) Ltd, a subsidiary of China Harbour Engineering Company (CHEC), this entity will build a USD 142 million mixed-use complex on Plot 1-01-02. CHEC is a state-owned Chinese firm and the primary investor in Port City infrastructure.
4. ICC Port City (Pvt) Ltd
This company is affiliated with the International Construction Consortium (ICC), a top local construction firm. It will invest USD 66 million and LKR 13.8 billion in a luxury residential project on Plot 1-02-05, targeting high-net-worth investors and expatriates.
IMF Oversight and Policy Contradictions
While these projects are positioned as strategic investments, the IMF has repeatedly warned against granting unilateral tax holidays without proper oversight. In its July 2025 Fourth Review Report, the IMF highlighted the need to end discretionary tax exemptions, citing risks to transparency, revenue stability, and investor confidence.
Sri Lanka has pledged not to grant fresh exemptions under the Port City and Strategic Development Projects (SDP) Acts until a revised, rule-based legal framework is enacted later this year. Despite this, in its recent Memorandum of Economic and Financial Policies (MEFP) to the IMF, the government admitted that 24 companies, including the four above, had already received tax concessions without prior IMF consultation.
Looking Ahead
These projects are expected to boost Sri Lanka’s appeal as a hub for real estate, tourism, and financial services. However, economists and analysts stress the need for greater transparency in awarding incentives and alignment with macroeconomic goals. Upcoming legislative amendments to the Port City and SDP Acts—due by October 2025—will likely define how Sri Lanka balances investment promotion with fiscal prudence going forward.
