COLOMBO:Sri Lanka has given a series of tax exemptions for two joint venture companies with China that will part own or manage common user facilities and commercial assets of a port in Hambantota in the South of the country. The tax breaks are given under the Strategic Development Projects Act enacted in 2008, which has wide discretionary powers and has drawn criticism as a opening the doors for corruption.
The law also brought in a controversial practice of giving tax free lifestyles to dozens of highly paid foreign executives, going against the principle of tax equity and broad-basing of the tax net.
Hambantota International Port Group (Pvt) Ltd, the project company that will operate the commercial assets of the port will get a 25 year corporate income tax holiday starting from July 2024. It will invest 794 million dollars.
There will also be an exemption on dividend tax. The Hambantota Port at the moment is a huge loss to the government. In a move will bring some revenue to the state coffers the company will however have to pay a 0.05 percent economic service charge on total revenue of the firm during the corporation income tax exemption period. Any management fees will be exempt from withholding tax for only 7 years, and only if such fees are below 3 percent of turnover and marketing fees, if they do not exceed 1.5 percent of turnover.
Incentive management fees will also be exempt from withholding tax for only 7 years, and only if they do not exceed three percent of operating profits. It will however be exempt for 25 years on any withholding taxes due on interest on foreign loans and fees to consultants.
In controversial move, continuing a iniquitous practice started by the ousted Rajapaksa regime, the current regime has also exempted 27 expat employees from paying income tax on their salaries.
The company, contractors and sub-contractors have also been exempted from custom duties, port and airport levy, excise charges on imports related to the project. Hambantota International Ports Services Company (Pvt) Ltd, which will operate the common user facilities has also been given wide exemptions. It is expected to invest up to 606 million US dollars, the notice said.
It will also get similar tax breaks and will pay economic service charge. Controversially three expat employees will be given tax free lifestyles for seven years.
