📈 FDI Strategy: Aligning with BEPS Pillar 2 for Genuine Value Creation

Sri Lanka must move beyond superficial investment metrics and adopt global tax frameworks to filter out short-term "value extractors" in favor of long-term economic "builders," according to provisional analysis. • Overall Figures & Trends: In 2025, FDI into Sri Lanka crossed the US$ 1.00 Bn mark, reflecting a strong 72% YoY jump. However, historical FDI has stagnated at just ~1% of GDP, well below regional peers, with a high risk of profit repatriation weakening the national recovery post-2022 crisis. • Sector & Project Breakdown: The 2025 growth was driven primarily by manufacturing, ports, tourism, and telecom. Key focal points include the Sinopec refinery in Hambantota and developments in the Colombo Port City, alongside the highly successful apparel & textiles sector, which serves as a model for deep local supply chain integration. • Policy Recommendations: The report urges the BOI and Port City regimes to implement BEPS Pillar 2 tools, specifically Qualified Refundable Tax Credits (QRTCs) and Substance-Based Income Exclusions (SBIEs). These will legally tie tax incentives to tangible local assets, domestic payroll, and genuine physical presence. • Strategic Focus Areas: To build a resilient economy, state incentives should prioritize higher-value apparel, rubber products, ICT/BPM (knowledge services), renewable energy, precision manufacturing, and the rapidly growing digital economy.