News
Colombo’s West Container Terminal enjoys 25-year tax holiday
Colombo’s West Container Terminal being built by India’s Adani Ports and Special Economic Zone Ltd and local partner John Keells Holdings benefit from a 25-year corporate income tax holiday given by the Board of Investment along with numerous other exemptions.
The project will also cause a substantial tax revenue loss to Sri Lanka and will divert traffic from Colombo.
Colombo West International Terminal (Pvt) Ltd has borrowed from two Lankan commercial banks.
A bounty of tax concessions have been allowed for years under the Strategic Projects Development Act, which does not define how projects are strategically relevant. In 2023, the IMF directed Sri Lanka to stop the largesse. Company names and generous corporate tax subsidies have now been disclosed under IMF diktat.
BOI officials presented divergent data to the Committee on Public Finance this week.
Asked by a one-time UNP finance minister, of the “benefit’’ to Sri Lanka, Renuka Weerakone, the BOI director general said; “We would have another container terminal.’’ On another occasion, Ms Weerakone also noted “get the foreign exchange through the services’’, “automated cranes … it will be a game changer’’. And, “in terms of the FDI (foreign direct investment) we are actually getting 350m, when the whole project is done’’.
Adani Ports and Special Economic Zone Ltd commissioned in July last year the Vizhinjam port in Kerala, “India’s first automated port’’, wading into the global transshipment trade.
Karan Adani, managing director of Adani Ports & SEZ has said the port “will transform maritime trade for India, handling ultra-large ships and diverting traffic from Colombo Port’’.
Ms Weerakone also told the panel the “investment’’ is US$650m and “up to now they have brought in 289 million, the balance would be for the phase two which would come in later.’’
JKH had announced to the stock market in 2021 that “total project cost’’ is estimated at US$650m. Debt to equity mix is 70:30. JKH equity commitment is estimated as US$70.
When asked about total tax forgone, an official said; “total tax forgone is US$104.54m’’, but he then said he was referring to exemption of customs duty and other levies, for five years.
Another official said the tax loss is “US$354m’’, and the “present value is US$103m’’.
It was then estimated instantly that the present value of the tax loss is US$207m.
Asked about the dividend, the Sri Lanka Ports Authority paid to the Treasury last year, Ms Weerakone replied on projected “revenue’’ of “US$130 to US$140m’’. She suggested SLPA will get 15% of that. She then said; “that we will have to project’’ dividend.
It is not known if the project company or SLPA has, or does, forecast a dividend.
A Sri Lanka Treasury publication notes the terminal’s FDI value at US$22.50m (Rs 7.302 billion at exchange rates at the time). The local investment is Rs 6.634bn. Total investment is Rs 13.94b.
A document shows that Colombo West International Terminal (Pvt) Ltd was given a 25-year tax exemption on corporate income. There will be no tax on dividend for 25 years and another year afterwards. Income tax is exempt for five years for 20 expatriates. Cess is exempt during the project implementation period of five years starting from build, operate and transfer agreement in September 2021.
Customs import duty, and Port and Airport Development Levy will not be charged for five years. There is also value added tax exemption.
These exemptions are effective from the first year in which the project company reports taxable profits, or two years after commercial operations begin, whichever happens earlier. These freebies were doled out under Section 2 of the SDP Act by Mahinda Rajapaksa as minister of economic policies and plan implementation in July 2021.
Filings in India by Colombo West International Terminal (Pvt) Ltd for 2023-24 as of 31 March 2024 show that borrowings include a US$35m bridging loan from Hatton National Bank and US$27m facility from Sampath Bank.
Audited by EY, the filings show a US$113.05m loss for 2024 versus US$312.68m in 2023. No revenue has been recorded since the terminal is being built.
Equity investment by JKH is stated as US$16.333m in 2024 (US$7.200m in 2023) and Sri Lanka Ports Authority US$7.205m (US$2.117m in 2023). Adani International Port Holdings’ equity investment is recorded as US$24.500m (US$7.200m in 2023)
Utility services and license fee is US$4.87m. The present value of future lease payments is US$168.3m.
The deep-water terminal with an annual handling capacity of about 3.2m 20-foot containers, is part of the Colombo Port Expansion Project which SLPA began in April 2008 with Asian Development Bank aid.
The BOT agreement between SLPA and project company was signed on 30 September 2021.
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