Sri Lanka to end tax breaks for small projects

Nov 19, 2010 (LBO) – Sri Lanka will stop giving tax holidays for investment projects smaller than 5.0 million US dollars to close a loophole that has drained state revenues through the import of duty free equipment, a government minister said. This year the government has to tax the people to give a salary increment to state workers, after delaying a hike last year.

“Some companies that get Board of Investment approval for one or two million dollars import several million dollars worth of equipment duty free and sell,” deputy economic development minister Lakshman Yapa Abeywardene said.

Sri Lanka’s Board of Investment, set up to approve foreign investments in addition to giving tax holidays on income, also allows such firms to import equipment ‘duty free’.

However with the end of a war the government has said it will limit tax holidays to new investments, the exact details of which are expected to be announced in a budget next week.

The government is also looking to for new revenue to fund expenditure and reduce budget deficits which had pushed up interest rates in the past and also created inflation when attempts were made to control rates by printing money.