Despite IMF agreements to curb tax breaks, Sri Lanka’s government has granted sweeping 35-year tax exemptions to four Colombo Port City companies. This includes zero corporate and dividend taxes for 25 years and continued incentives beyond raising questions over transparency, fiscal reform, and international credibility.
In a controversial move, the Sri Lankan government has issued long-term tax exemptions to four companies operating within the Colombo Port City project, despite its prior assurances to the International Monetary Fund (IMF) to halt such incentives until proper legal reforms are implemented.
President Anura Kumara Dissanayake, acting as Minister of Finance, Economic Stabilization and National Development, authorized these concessions through Extraordinary Gazette Notifications 2445/2 to 2445/5 issued on July 14. The tax breaks are granted under the Inland Revenue Act and will apply for a period of 35 years.
According to the gazette, these Port City companies will be completely exempt from all taxes on income, dividends, and gains for the first 25 years. Additionally, payments made during this period will not be subject to withholding tax. Following this, the companies will benefit from a 50 percent reduction on the prevailing corporate tax rate for a further 10 years.
The entities receiving these benefits are Ceylon Real Estate Holdings (Private) Limited, Clothespin Management and Development (Private) Limited, IFC Colombo (Private) Limited, and ICC Port City (Private) Limited. All four have been classified as ‘authorized persons’ and ‘enterprises of strategic importance.’
They will enjoy not only corporate income tax exemptions but also VAT waivers, customs duty relief, dividend tax breaks, and personal income tax exemptions for their foreign employees.
This decision stands in stark contrast to commitments made under the IMF’s Extended Fund Facility (EFF). The IMF’s Fourth Review Staff Report clearly outlines Sri Lanka’s pledge to reform the Port Cities and Strategic Development Projects Acts by October 2025. The goal is to prevent outdated laws from enabling unchecked tax exemptions and to bring reforms in line with transparency, accountability, and sound fiscal practices.
The IMF has consistently criticized discretionary tax exemptions, citing their role in significant revenue loss, increased corruption risk, and diminished investor confidence. It has urged Sri Lanka to impose strict criteria and time-bound limits for all future tax incentives.
