📈 Govt. Warned Over Obsolete FDI Tax Incentives Under Global Rules

KPMG Sri Lanka has warned that the country's tax incentive frameworks under the BOI and Port City Colombo are becoming obsolete due to the OECD’s BEPS Pillar Two global minimum tax framework. • The Core Issue: Tax holidays and concessionary rates for large multinational enterprises (MNEs) are being neutralized. Taxes foregone by Sri Lanka are instead being collected by home jurisdictions of these MNEs, transferring the benefit from the investor to foreign governments. • Current Deficiencies: The current architecture remains geared toward small-time investors rather than high-end MNEs. Regional competitors like Singapore, Malaysia, Vietnam, and Indonesia have already adjusted their strategies, putting Sri Lanka at a distinct disadvantage in attracting foreign direct investment (FDI). • Urgent Recommendations: The Finance Ministry must urgently lead a redesign of the fiscal policy framework, as the Inland Revenue Department lacks this mandate. The state must quantify revenue losses, gather data on operating MNEs, and introduce modern alternatives like Qualified Refundable Tax Credits and substance-based incentives. Existing tax holiday agreements must be renegotiated immediately to prevent current investors from relocating to regional competitors.