Financial Times

Rs 200 bln on incentives to boost FDI
The Board of Investment (BOI) had to forego Rs 200 billion through fiscal incentives to promote investment but there were doubts as to whether this had a positive impact on foreign investment inflows, the former head of the BOI has said.

Saliya Wickramasuriya, who resigned as BOI Chairman/Director-General on November 25, said a recent study by the Board estimated over Rs 200 billion being lost through fiscal incentives offered by the Board to promote investment, mainly in the form of duty concessions on raw materials and capital goods, followed by tax holidays.

“The principle effect of these concessions has been to increase domestic private investment to the level of approximately twice that of FDI inflow on an annual basis, while their impact on FDI itself, however, is debatable,” he said in a November 25 note to the yet-to-be appointed BOI board.
New appointments to the Board are yet to be made by President Mahinda Rajapakse.

The once-compelling Export Processing Zones, Tax holidays and Duty Free facilities are now less significant than sound macro-economic fundamentals when it comes to attracting foreign funds, he said. From mid 2004, a moratorium was placed on general promotion missions overseas because studies showed that in 2003, only 5-6% of projects commenced as a direct result of the BOI’s own promotional campaigns and missions.

Some 67% of FDI in 2003 came as a result of expansions of existing investors, and the rest was a result of individual companies’ own research and local linkages.

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