• Committee cites inconsistencies, outdated job metrics, investor uncertainty 

The Committee on Public Finance (COPF) has withheld approval for a key gazette notification aimed at regulating tax incentives under the Strategic Development Projects (SDP) Act, citing significant structural concerns.

The decision had been taken during a high-level hearing on Tuesday (31 March), where COPF Chairman Dr. Harsha de Silva had described the proposed regulations as a terrible miscalculation that could hinder high-tech sector growth and create an artificial bias against manufacturing.

The discussion had centred on Gazette Notification No.2472/66, dated 8 February, presented by the Department of Fiscal Policy. The gazette marks the first attempt to introduce a rules-based framework for granting tax incentives to large-scale investments following the 2025 amendments to the SDP Act.

Previously, the Minister of Finance exercised discretionary authority over such incentives. The revised framework was intended to enhance transparency and predictability for investors. However, the COPF found that the proposed criteria itself were fundamentally flawed.

A key point of contention had been the disparity in tax holidays across sectors. Under the proposed structure, Category A (Tourism and Leisure) investments between $ 50 million and $ 150 million qualify for a six-year Corporate Income Tax (CIT) holiday, while Category B (Manufacturing) investments between $ 50 million and $ 100 million receive only a five-year holiday.

“If I bring $ 60 million for tourism, I get six years; if I bring $ 60 million for manufacturing, I get five years,” de Silva had noted, questioning the rationale behind favouring tourism over manufacturing, particularly when the country aimed to build a manufacturing-led economy.

Ministry officials had defended the classification, saying that it was based on historical investment patterns with the Board of Investment (BOI), but were reportedly unable to provide a clear strategic justification for the disparity.

The committee had also raised concerns over minimum local employment requirements tied to eligibility. Under the gazette, manufacturing projects must generate at least 250 jobs, compared to 100 for tourism and 50 for technology or agriculture.

De Silva had described these benchmarks as arcane and misaligned with global economic trends, noting that high-value industries such as semiconductors, robotics, and advanced manufacturing were increasingly automated and relied on smaller, highly skilled workforces.

He had also warned that high-value firms could be excluded despite contributing significantly to economic output.

Further criticism had been directed at inconsistencies between SDP incentives and those offered under the Port City regulatory framework. The committee had noted that an ICT company investing $ 60 million could face differing tax regimes, depending on whether it operated within the Port City or under the BOI on the mainland.

This inconsistency, members had argued, created uncertainty and undermined investor confidence.

Before reconsidering the gazette, the COPF has directed the Ministry of Finance and the BOI to conduct a comparative analysis of incentive regimes in competing regional economies.

“We need to know what Vietnam, India, and Malaysia are offering,” de Silva had said, stressing that Sri Lanka had to remain competitive in attracting Foreign Direct Investment (FDI).

The committee had also urged the BOI to take a more proactive role in investment promotion, rather than relying solely on the Ministry of Finance.

The Chairman emphasised that future incentive structures should prioritise productivity, technological value, and efficient land use, rather than focusing primarily on job creation thresholds.

The SDP Act No.14 of 2008, as amended by Act No.26 of 2025, is a legal framework designed to attract large-scale investments of national importance. It grants significant tax holidays (up to 10 years as of 2026) and exemptions from VAT, Customs Duty, and other levies to qualified projects in infrastructure, tourism, and technology.