Govt. goes back on ‘no tax exemption’ policy Generous 25-year tax breaks for H’tota partners

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By 2017-12-08

By Mario Andree

Despite the Government repeatedly claiming that it would not provide any tax incentives for investments, the Ministry of Development Strategies & International Trade has offered Hambantota International Port Group (Pvt) Ltd (HIPG) and Hambantota International Port Services Company (Pvt) Ltd (HIPSC) generous tax exemptions spanning a period of up to 25 years. The Ministry has identified the project to restructure the Hambantota Port as a strategic development project (SDP) under Act No. 14 of 2008. The envisaged investment for the management of all the operational assets of the Port of Hambantota is expected to be US$ 794 million, while the investment for the management of all the common user facilities and services of the Port is expected to be US$ 606 million.

The Government obtained Cabinet approval to restructure the Hambantota Port (Port) development and transform it into a commercially-viable national asset.
The two companies are to implement and commence commercial operations within seven years upon approval by resolution of Parliament.

The Government has granted HIPG and HIPSC a 25-year waiver on the income tax on the profit, gain and income generated by the project, which will commence seven years from the effective date of the concession agreement.
However, Economic Service Charge (ESC) will be applicable at the rate of 0.05% of gross operation revenue of the project during the above Tax Exemption Period.


Dividends distributed to the shareholders out of the exempted profit gains will be exempt from income tax for 25 years and one year thereafter.

The project companies are exempt from the payment of Withholding Tax on management fees and royalty payments, marketing fees and incentive management fees for seven years. However, the companies are exempt from the payment of Withholding Tax on interest on foreign loans taken for capital expenditure and on technical fees or service fees paid to consultants for a period of 25 years.
The expatriate staff of HIPG and HIPSC will be exempt from payment of Pay as You Earn (PAYE) Tax for a period of seven years, given that HIPG does not exceed 27 foreign employees and HIPSC does not exceed three.

Further, the companies and sub-contractors will be exempt from Value-Added Tax (VAT), Ports and Airports Development Levy (PAL), Excise Duty, CESS and Nation Building Tax (NBT) and Customs Duty for a period of seven years on all imports and local purchases of project-related goods or services required for the implementation of the project. However, vehicles imported for travelling have not been exempted from the Excise and Customs Duty.

The Government obtained Cabinet approval to restructure the Hambantota Port (Port) development and transform it into a commercially-viable national asset.
The two companies are to implement and commence commercial operations within seven years upon approval by resolution of Parliament.

The Government has granted HIPG and HIPSC a 25-year waiver on the income tax on the profit, gain and income generated by the project, which will commence seven years from the effective date of the concession agreement.
However, Economic Service Charge (ESC) will be applicable at the rate of 0.05% of gross operation revenue of the project during the above Tax Exemption Period.

Dividends distributed to the shareholders out of the exempted profit gains will be exempt from income tax for 25 years and one year thereafter.

The project companies are exempt from the payment of Withholding Tax on management fees and royalty payments, marketing fees and incentive management fees for seven years. However, the companies are exempt from the payment of Withholding Tax on interest on foreign loans taken for capital expenditure and on technical fees or service fees paid to consultants for a period of 25 years.
The expatriate staff of HIPG and HIPSC will be exempt from payment of Pay as You Earn (PAYE) Tax for a period of seven years, given that HIPG does not exceed 27 foreign employees and HIPSC does not exceed three.

Further, the companies and sub-contractors will be exempt from Value-Added Tax (VAT), Ports and Airports Development Levy (PAL), Excise Duty, CESS and Nation Building Tax (NBT) and Customs Duty for a period of seven years on all imports and local purchases of project-related goods or services required for the implementation of the project. However, vehicles imported for travelling have not been exempted from the Excise and Customs Duty.

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