CPCEC welcomes tougher investment rules, citing enhanced transparency and stability

The Colombo Port City Economic Commission (CPCEC), in a media statement, has publicly endorsed a new, more stringent investment incentive framework, framing the move as a crucial step toward enhancing investor confidence.

The commission stated that these efforts “aim to enhance transparency and further solidify the rules-based regulatory regime governing the Colombo Port City Special Economic Zone”. 

The reforms, which significantly reduce tax holidays and raise investment thresholds, are aligned with Sri Lanka’s commitments under its International Monetary Fund (IMF) programme.

The new regulations, gazetted on September 20, 2025, replaced a previous, more liberal framework that expired in August 2025. This policy shift marks a pivotal new chapter aimed at balancing robust investment promotion with the nation’s fiscal consolidation goals.

This recalibration is designed to overcome historical project challenges that had previously impacted investor sentiment and the pace of development. In response, the government has taken decisive action, guided by technical insights from the IMF, to resolve legacy issues and align the project with international standards.

Under the new rules, the sweeping 25-year tax holidays previously offered have been eliminated. Instead, incentives are now tied to stricter, tiered investment categories for “Primary Businesses of Strategic Importance” (BSI).

The revised incentive structure introduces several key changes. The maximum corporate income tax holiday has been reduced from 25 years to 15 years, with a new tiered system offering an 8 to 15-year tax holiday based on meeting minimum investment and employment criteria, starting at US$ 25 million and 100 jobs, and going up to US$ 1 billion and 300 jobs. Furthermore, benefits for Secondary BSIs, which do not meet the primary criteria, have been significantly curtailed. Instead of a lengthy tax holiday, these businesses are now eligible for a concessionary corporate tax rate of 7.5 percent for only four years, after which standard tax laws will apply.  Finally, the new regulations no longer include exemptions from Value Added Tax (VAT), which were a feature of the previous framework.

These reforms are directly in line with Sri Lanka’s commitments under IMF’s Extended Fund Facility (EFF) arrangement, which include reducing revenue leakages, strengthening anti-corruption safeguards, and rigorously evaluating tax incentives. In its July 2025 Country Report, the IMF noted that Sri Lanka’s performance under the programme has been “generally strong” and acknowledged that steps were underway to amend the CPCEC Act to introduce transparent and time-bound eligibility criteria.

Despite the tighter regulations, the CPCEC highlighted continued growth and investor interest in the project. By the end of March 2025, the Commission had licensed 83 Authorized Persons, These entities employed over 2,900 staff and operated across 45,000 square metres of office space in and around Colombo, with total capital expenditure reaching US$ 134 million. By July 2025, the number of licensed APs had grown to approximately 140—including four Primary BSIs—expected to invest US$ 1.3 billion to develop 81,000 square metres of land, which will encompass 323,000 square metres of residential, retail, and commercial spaces.

The CPCEC, which functions as the single-window authority for the Port City, stated it remains resolute in delivering its mandate. With these reforms, the commission is positioning the Colombo Port City as a resilient and competitive hub poised to become a globally recognized destination for strategic investment and innovation in South Asia.