ECONOMYNEXT – Sri Lanka is limiting future tax holidays but does not want to take ad hoc measures involving unilateral abrogation of tax holiday that will undermine the investment environment, Treasury Secretary Mahinda Siriwardena said.
In Sri Lanka questions have been raised about excessive tax holidays given by Strategic Development Project law where targeted, and apparently discretionary, tax concessions are given.
“These are legally binding commitments that past governments have entered into. If you take retrospective measures to change some of those contracts it’ll have significant legal implications,” Siriwardena told an economic forum organized by the Ceylon Chamber of Commerce.
“Tax holidays extended in the past have important implications. In some cases, it was a bit discretionary in nature.”
“That’s the concern that we are having right now. It may also have implications from the perception of investors as well. I mean, we are inviting investors to come here and invest in this country. That will have to be also taken into account.”
Siriwardena said that it had to be a carefully navigated process. “We have to strike an appropriate balance between addressing relevant concerns.”
“At the same time avoiding whatever potential legal obstacles, and understanding investors; so as not to undermine investor confidence.”
“All these steps will have to be taken into account. That’s why we have not taken any specific measure. Going forward these are the sort of issues that we will be facing.
Sri Lanka’s investment environment has been badly hit after the end of a civil war due to expropriation of private enterprises, retrospective taxes and sudden reversals of policy.
Sri Lanka also has monetary instability where exchange controls are slapped after cutting rates to boost growth (potential output).
After the worst deployment of macro-economic policy in the history of the central bank in 2020, a series of trade and exchange controls were also slammed.
“We will have a new framework of tax incentives – a new framework will be introduced shortly. We will be addressing particularly this STP related concerns, to basically have a transparent system. That’s what basically people are asking for.
“This new framework will ensure the appropriate balance between the banking investments, investors and also driving growth.”
Sri Lanka is also planning to publish a tax expenditure statement.
“We have been asked to come up with tax expenditure publishing. So, publishing the expenditure report is a key aspect.” (Colombo/Nov30/2023)