Lack of rules governing foreign ownership of property would lead to manipulation: expert

The non-publication of any regulations or guidelines allowing foreigners to own land on a freehold basis up to now could allow the system to be manipulated by officials, an expert said.

The 2016 budget reversed the direction of the Land (Restrictions on Alienation) Act No. 38 of 2014, removing the 15 percent leasehold tax on foreigners and calling for the removal of restrictions on land ownership for foreigners.

“So far we have not been given any regulations or guidelines as to what criteria they will be looking at, which leaves room for the officials to actually manipulate this.

 It would have been better if they set out listed criteria that they would look at in an investor,” BDO Partners Tax Services Senior Manager Dinusha Perera said.

The nationalist past regime conceived the 2014 legislation, under which foreigners, foreign companies, or local companies with over 50 percent foreign shareholding cannot purchase new land.
During post-budget seminars, Finance Minister Ravi Karunanayake had said that the government will allow foreign investors to own land if the investments will bring large benefits to the local economy.
“This allows some kind of an opening, guide or hope for the investors to go to the authorities and speak to them,” Perera said.

Karunanayake had said that the government will approve projects on a case-by-case basis, although on one occasion, he had said that an investor who brings in Rs.2 billion would be allowed to own 100 acres of land.

Perera said that it may have been better if the policy had set out a list of qualifications for each investment to be eligible for freehold land ownership, instead of a case-by-case basis.

“Maybe the quantum of investment or term of investment, which should be ideally set out clearly, so that it doesn’t leave room for officials to arbitrarily use their powers in giving land to investors,” she said.

Perera said that land is too important for officials to hand out to whomever they feel like.

While the new regime seems to favour foreign freehold land, it recently reworked the Port City Agreement by providing the Chinese government with a lesser extent of leasehold land instead of allowing it to own 20 hectares of freehold and 108 hectares of leasehold land in the original agreement.

Meanwhile, until the relevant gazette notification is published, the 2014 legislation will technically be in effect, leaving any recent awarding of freehold land to foreigners open to legal action.

Whether the frequent changes in policies will reduce investor confidence instead of boosting confidence through freehold status, and whether the new policy stance will significantly contribute towards the exports-led social market economic growth of the new regime remains to be seen.

Policy outcomes in reality have usually been inversely proportionate to theories announced outlined politicians in Sri Lanka.
(CW)