The Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka) continued to cement its role as the nation’s foremost thought leader in economic and fiscal policy, proactively guiding the business community through the country’s most significant legislative transformations.
In line with this mission, the Institute recently convened an informative session titled “Change in Waves: Safe or Struggle? Navigating Incentives and Reforms under the Port City Act and Strategic Development Projects Act”, providing a vital forum to explore how new rules on governance, employment taxes and sunset clauses are redefining the country’s appeal to foreign investors.
The session brought together industry leaders and experts to shed light on the new rules governing the Colombo Port City and Strategic Development Projects Acts. Mr. Tishan Subasinghe, President of CA Sri Lanka, and Mr. Saman Srilal, Member of Council and Chairman of the Faculty of Taxation, were also present and shared their insights at the event.
The keynote was delivered by Ms. Charmaine Tillekeratne, Head of Tax at Deloitte; while the panel discussion featured Ms. Shehani Paranavitane, Partner – Tax, EY Sri Lanka; Ms. Samanthi Dias, Founder and Attorney-at-Law at Front Page Legal Services; and Mr. Suresh Perera, Principal – Tax and Regulatory, KPMG. The panel discussion was moderated by Ms. Dinusha Rajapaksha, Partner – Tax Services, BDO Partners.
Delivering the keynote, Ms. Tillekeratne, offered a deep dive into the mechanics of the amended Port City Act. She provided a comprehensive overview of the recent amendments to the Colombo Port City Economic Commission Act and the evolving regulatory landscape governing the Port City. She explained that the January 2026 amendments mark a significant shift towards enhanced governance, fiscal accountability and performance-based incentives.
The revised framework introduces greater clarity and predictability, limits open-ended tax holidays through sunset clauses, and links fiscal benefits to measurable performance targets. Businesses operating within the Port City must obtain a licence from the Commission and register as offshore entities, with strict restrictions on sourcing funds locally.
The amendments also define clearer criteria for Businesses of Strategic Importance (BSI), including minimum investment thresholds and employment requirements, subject to technical review. Notably, VAT exemptions have been removed, tax holidays for primary BSI projects are now structured based on investment size, and secondary BSI projects are subject to a concessional tax rate rather than full exemptions. The Commission has also been empowered to monitor compliance, with provisions to reduce or claw back benefits where conditions are not met, reinforcing transparency and accountability.
Ms. Tillekeratne further highlighted parallel reforms to the Strategic Development Projects (SDP) Act, signalling a broader recalibration of Sri Lanka’s investment incentive regime. Under the proposed changes, tax holidays have been significantly reduced, clear investment criteria introduced, and cost–benefit analyses made mandatory prior to granting concessions.
Employment income tax exemptions and certain withholding tax exemptions on dividends and interest will no longer apply, while ongoing performance monitoring will be strengthened, with the possibility of withdrawing incentives if agreed targets are not achieved. Collectively, these reforms underscore a policy shift towards a more disciplined, performance-driven and internationally aligned investment framework designed to balance competitiveness with fiscal responsibility.
The keynote presentation was followed by a panel discussion exploring the practical implications of the new legal framework within a broader global context. The session brought together leading experts who unpacked the operational realities facing investors and advisers. Ms. Paranavitane observed that the revised SDP regime lowers investment thresholds in certain sectors, making the framework more accessible, while cautioning that the tax holiday period will commence only from the date of commercial operations.
Ms. Dias clarified key legal considerations, noting that existing Sri Lankan companies cannot simply migrate operations into the Port City structure and that newly incorporated entities must comply with prevailing local employment tax obligations. She stressed that new companies will be required to pay employment income tax in accordance with the updated provisions.
Adding a global dimension to the discussion, Mr. Perera highlighted the introduction of the compulsory Beneficial Ownership Register and drew attention to the implications of the OECD’s Global Minimum Tax (Pillar Two). He cautioned that where Sri Lanka offers concessional rates the parent company’s jurisdiction may collect the top-up tax, resulting in no additional revenue to Sri Lanka while diluting the intended investor benefit. He suggested that incentives may need to be redesigned, potentially through refundable tax credits linked to investment or payroll, in order to remain competitive under the evolving global tax architecture.
Meanwhile, delivering his remarks at the event, Mr. Subasinghe highlighted that CA Sri Lanka annually submits budget proposals to the Government for its consideration. “In this regard, we welcome feedback from the business community on areas where improvements can be made by the Government, so that these insights can be incorporated into our proposals submitted for consideration.”
