Advocata Institute Urges Sri Lanka to Reform Tax Concessions

The Advocata Institute argues that Sri Lanka's current strategy of using broad tax concessions to attract foreign investment is fiscally costly and often unjustified. The think tank highlights excessive incentives, such as 25-year tax holidays granted to the Colombo West International Terminal, Colombo International Container Terminals, and Port City BPO, as well as substantial exemptions for luxury real estate developers in the Colombo Port City.

The institute warns that these concessions distort resource allocation and fail to generate expected domestic employment. As evidence, it notes that over 14,300 foreign worker visas have been issued under the Port City framework. The current system also includes a 200% enhanced capital allowance for investments in the Northern Province under the Inland Revenue Act.

Citing the OECD/G20 global minimum tax rate and a 2024 Governance Diagnostic Assessment from the International Monetary Fund, the Advocata Institute recommends a targeted framework. This new approach would reward measurable outcomes, such as employee training and job creation, with oversight provided by the Department of Fiscal Policy to maintain fiscal sustainability.