Strategic Project Act to be suspended under tax incentive system change
The government has taken a firm policy decision to suspend the Strategic Development Projects (SDP) Act until the structures and processes are in place, and on the long term replace it with a new law, the Finance Ministry‘s fiscal policy department sources said.
These structures and processes will evaluate the effectiveness of the offered incentives including tax holidays or tax exemptions for investors, they divulged.
Efforts are underway to suspend the Act initially in the midterm and later abolish it by enacting a new Priority Investment Project Act with necessary investment friendly provisions.
This fiscal policy decision has been taken in accordance with the International Monetary Fund’s (IMF) recent directive.
The existing SDP Act has given generous tax holidays for non-export-oriented projects and non-priority mixed development projects with no contribution towards economic growth connecting the country into global supply chains.
The fiscal authority has to halt the recent approval by the Order in Gazette No. 2291/25 under the SDP Act seeking to provide 12-year tax concessions to any company investing in Sri Lanka, a former Treasury secretary told the Business Times.
He added that SDP Act will have to be suspended for the near term, similar to the freezing of the Act in 2016 during the previous IMF reform programme.
The Department of Fiscal Policy would evaluate and guide the design of all tax incentives, including those based on the SDP Act and the Port City Act, preparing the necessary structures, including data sharing protocols and legal documents.
The assignment of authority to the department will take time and no further projects would be approved until then.
The proposed new Act will be devised to provide provisions only to grant 100 per cent relief to foreign financed projects but not partially or fully domestic financed projects. The aim is to achieve the goal of attracting more foreign direct investments into the country, a ministry disclosed.
Previously strategic development projects have been selected by the Board of Investment and approved by the Investment Promotion Ministry in consultation with the Ministry of Finance.
This procedure will be changed following the establishment of fully powered commission for export and investment promotion amalgamating the BOI and Export development Board, he revealed.
Colombo Port City foreign investment projects will be selected by a dedicated Commission, which will recommend those projects to the President or Minister (if the Port City should be assigned to a Minister), a IMF technical assessment report indicated.
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