olombo, Sri Lanka — September 20, 2025
The government has issued new regulations overhauling the incentive framework for businesses in the Colombo Port City Special Economic Zone (SEZ). The changes, gazetted on 20 September 2025, mark a shift from generous long-term tax holidays to a more moderate and tiered system. Sri Lanka News
What’s Changed
- Reduced duration of tax holidays: Earlier arrangements allowed very long exemption periods; the new framework shortens or restricts these benefits. Sri Lanka News
- Higher investment thresholds required to qualify for incentive benefits. Businesses now need to meet stricter criteria of strategic importance. Sri Lanka News
- Validity & Duration: The new regulations will apply for the next five years. Sri Lanka News
Why It Matters
- This represents a clear policy shift: balancing between attracting investment and ensuring fiscal responsibility in line with national consolidation goals (including obligations under international financial agreements).
- Investors who were previously banking on very long tax holiday windows may need to re-evaluate financial projections and internal rate of return calculations.
- The more selective incentives may favor larger projects or sectors considered of strategic importance (e.g., technology, export-oriented manufacturing, R&D).
Implications for Business & Economy
- New investors: May view SEZs differently — incentive attractiveness is weakened somewhat; financial modeling will need to adjust.
- Existing projects under older terms may enjoy grandfathered benefits, but future expansions or follow-on projects may be subject to new regulations.
- Government revenue: The move could increase fiscal inflows (taxes, duties) earlier than before, helping with budgetary pressures.
Challenges Ahead
Attractiveness vs Competitiveness: If incentives are too modest, investors may look at alternative SEZs or neighboring countries with more favorable policy regimes.
Clarity & consistency in enforcement: Businesses will expect transparent application of the new incentive criteria.
Communication: Ensuring all stakeholders (local & foreign investors) are well informed will avoid confusion and potential disputes.
