ECONOMYNEXT – Sri Lanka is bringing a competitive and rules based, tax framework for investors after discussing with the International Monetary Fund, for projects over 50 million US dollars, Board of Investment Chairman Arjuna Herath said.
Sri Lanka suspended tax holidays running up to 20 years or more given under Strategic Development Project Act, amid concerns over arbitrary ‘negotiated’ taxes as part of an IMF program.
“In that context, we have worked actively with IMF to get the STP project concessions in place,” Herath said.
“And we are looking at this being announced very soon. And projects over US dollars 50 million will get SDP concessions.
“Based on thresholds, they will have more attractive concessions. So that will come into place and we are hoping that will make our country and jurisdictions more competitive than what it is today.”
Taxes will be based on transparent rules like in other countries. The practice of giving tax free salaries to senior executives of SDP companies will also be ended, he said.
Sri Lanka’s corporate tax rate is 30 percent, compared to 20 percent for East Asian countries with monetary stability including Vietnam and Cambodia.
In Singapore, a country with a high level of monetary stability, involving near zero inflation and banking crises unheard of, with the Monetary Authority not having a policy rate and the currency appreciated against an undisclosed external anchor when the US Fed drives up commodity prices.
Cambodia has currency competition, and country also no longer suffers balance of payments crises as it monetary authority cannot operate a transmission mechanism due to high levels of dollarization removing the requirement for ad hoc tax hikes.
Sri Lanka is frequently hit by ad hoc tax hikes in IMF programs when currency crisis come in the wake of rate cuts and inflationary liquidity operations.
The first such balance of payments crisis took place in 1952/3, leading to hike in income and import taxes. At the time the central bank suggested tax holidays to counter uncompetitive taxes.
The US has also discouraged tax holidays and is insisting on a minimum 15 percent corporate tax to reduce advantages to countries with low income taxes. Several Middle Eastern nations with monetary stability that have little or no income taxes have faced pressure to hike income taxes. (Colombo/Oct22/2025)