Tax exemptions under strict scrutiny

In a move to promote foreign investments, the government has decided to grant wide ranging tax exemptions under strict scrutiny for Strategic Development Projects (SDP) until the structures and processes are in place to evaluate the effectiveness of the offered incentives, Finance Ministry sources divulged.

These mega development projects are selected by the Board of Investment (BoI) and approved by the Investment Ministry in consultation with the Ministry of Finance.

Projects for the Port City (which is itself an SDP project) will be selected by the Port City Commission, which will recommend those projects to the President, a senior official of the ministry said.

At present there is no criteria needed to be satisfied for a project to be treated as strategic relevance, and the return of investment from such projects is not systematically compared against their potential benefit in a transparent manner, he added.

The International Monetary Fund (IMF) has recommended an impartial and transparent analysis on deciding whether a specific project is viable and whether the potential benefit exceeds its social costs.

While the BoI is likely well-positioned to understand the investment potential of specific projects, it lacks an understanding of the wider fiscal framework and budgetary needs which are necessary to evaluate the net social value of a specific project, a IMF report observed.

Recently the cabinet of ministers approved tax exemptions and incentives for two major projects within the Colombo Port City.

The two projects are US$100 million Asiri Port City Hospital and TIQRI Software Pvt Ltd with an investment of $100,000 to implement an information technology venture.

Asiri Port City Hospital is considered as a primary business of strategic importance whilst the TIQRI venture is approved for its strategic significance as a secondary business in the Colombo Port City.