Sri Lanka to change current FDI policy

Sri Lanka is to change its Foreign Direct Investment (FDI) policy moving away from an over-dependence on tax holidays and other duty concessions on imports of raw material and machinery, Finance Ministry sources disclosed.

A greater focus will be on maximising the country’s competitive advantages in location, skills base, and ongoing preparation work of free trade agreements with both developed and emerging markets.

Sri Lanka plans to attract US$5 to 6 billion in FDI in the next three years, with the government focusing on policy consistency to attract foreign investors from the US, China and India.

However according to Finance Ministry econometric models FDI in Sri Lanka is expected to reach $549.48 million by the end of this year. Econometrics refers to the use of mathematical methods (especially statistics) in describing economic systems, according to the industry definition..

The government will introduce a new investment law and an incentive regime for foreign investors while improving the ease of doing business through several proposals in the 2018 budget, a senior official told the Business Times.

The new FDI policy spells out provisions that allow them to raise foreign exchange from venture capital funds and other investors through instruments such as convertible notes.

The government will do away with unrestricted powers vested in ministers to grant tax concessions and introduce a transparent system for granting tax concessions.

A concessional tax rate is to be introduced on interest payable to a non-resident on borrowings made in foreign currency from parties outside the country under a loan agreement or by way of issue of any long-term bond.

The corporate income tax rate will be revised while the concessions for various developments can be obtained via enhance depreciation allowances.

The concept of deemed dividend tax will be removed and the scope of dividend is to be widened to capture capitalisation of profits.

A 10 per cent Capital Gain Tax will be introduced in line with the concept of equity in taxation due to growing investments in capital assets.