New Investment Incentive Principles

Attracting significantly higher levels of FDI is essential for meeting the government’s objectives of accelerated growth and the creation of one million jobs. The savings and investment gap and the need for non-debt creating inflows amplify the case for promoting FDI. However, providing incentives to boost foreign investment needs to be balanced against the compulsions of addressing the need to improve government revenue performance. It is now timely to review the balancing of these two objectives in the context of qualitatively changed circumstances on both fronts.

BOI has been providing incentives under its own regulations since 1978 and the last issue of regulations was in 2006. However, 2006 BOI Regulation was suspended from 2011 to 2015 October and the incentives were provided under Inland Revenue Laws. When the incentives under Inland Revenue law was cancelled in 2014 October, BOI has reverted to 2006 regulation until a directive from the government is given.

First, the current 2006 incentive structure has not taken into account significant changes in the overall landscape. There is no longer a high war risk premium attached to the Sri Lankan economy. In addition, concerted action is being taken to improve the investment climate and strengthen trade facilitation. This is reducing transaction costs (the hassle factor) of doing business. Electricity and fuel costs are also lower. Above all, the government’s commitment to macroeconomic stabilization, supported by the IMF and other multilateral and bilateral agencies, is creating the conditions for more predictable and consistent policy-making, with less volatile interest and exchange rates in the medium-term. All this means that there is no longer a rationale for over-generous (in terms of government revenue foregone) tax concessions. Investors will increasingly be able to achieve their risk – adjusted hurdle rates without such incentives.

At the same time, a sustainable path of fiscal consolidation is not feasible without improving the government’s revenue performance (13% of GDP compared to 18% - 20% among rating peers). The challenges on the revenue side further erode the case for tax holidays. It should also be recognized that investors rank tax concessions very low when it comes to the factors which determine their investment decisions. Macroeconomic and political stability as well as the ease of doing business are far more important.

There is, therefore, a very strong case for eliminating tax holidays (taxes based on profit). However, Sri Lanka has not achieved a situation where all concessions can be eliminated, particularly as competitor countries continue to offer them. The revised incentive framework should be focused more directly on boosting investment. The flat lining of domestic investment (20% - 21% of GDP) and disappointing FDI flows (1.5% of GDP when comparators have been attaining 5%) is arguably the most disappointing aspect of the post-conflict economic narrative.

            Principles for a new incentive framework

            1. Moving from blanket incentives to targeted incentives based on strategicdevelopment objectives

                        a.  Align incentives to the broader investment attraction strategy

                        b.  Adopt performance-based incentives

            2. Clearer eligibility criteria / limit discretion

                        c.  Maintain a rule based process for granting incentives

                        d.  Tax incentives provided in Tax Code (as opposed to investment Law, decrees, policy statements, individualized  negotiations)

                        e.  Streamlining evaluation and appraisal at project approval stage

            3. Stronger monitoring and evaluation of results

                         f.  Periodically and consistently study the effectiveness of incentives to assess the extent to which incentives are meeting the development objectives

                        g.  Regularly collect and publish data on costs associated with incentives (including yearly tax expenditure statements)

            4. Strengthened administration

                        h.  Incentives managed by a single entity awarding, selecting and managing incentives

                        i.   Clearer and simpler monitoring and reporting mechanism

One-stop-shop at Board of Investment

A conception of the One-Stop Shop has emerged as a reform action towards the improving of the Investment Climate of Sri Lanka at the Development of Policy Loan and Ease of Doing Business forum which has conducted by Government of Sri Lanka with the participation of all the stakeholder institutions.

The proposal to establish an One-Stop Shop become a reality on January 2016 with the consolation of all the stakeholder organizations at Board of Investment of Sri Lanka as a instrumental solution in increasing Foreign Direct Investments (FDI) and as a policy reform to directly facilitate the investors by creating coherent business climate.

OSS is a function which providsthe total solution to the investor in coordination with all the relative stakeholders, operations and services in a specific regulatory area or activity to start and implementation an investment project.

It is expected to accelerate the project implementation through;

-  Minimizing the taken time for every and each process of a project

-  Reducing the steps

-  Reducing the extra costs

-  Increasing the Satisfaction

 

 

Main stakeholders at BOI OSS

Ministry of Provincial Councils and Local Government

Department of Inland Revenue

Sri Lanka Customs

Land Commissioner General’s Department

Department of Import and Export Control

Forest Conservation Department

Department of Registrar of Companies

Department of Immigration and Emigration

Central Environment Authority

Urban Development Authority

National Water Supply and Drainage Board

Ceylon Electricity Board

Sri Lanka Land Reclamation and Development Corporation

National Dangerous Drug Control Board

Colombo Municipal Council

 

Contact:

Mr. Vidharsahan Fernando, Executive Director (Acting)

One-Stop-Shop

The Board of Investment of Sri Lanka

27th Floor

West Tower

World Trade Centre

Colombo 01

Sri Lanka

M: +94 77 773 4738

 

One-Stop-Shop Central Steering Committee (CSC)

Establishment of the One-stop-shop Central Steering Committee has been identified as a critical requirement for anchor investments in obtaining the required clearances/ approvals within the shortest possible time. This committee was authorized to undertake all critical matters relating to clearances/ approvals of investment projects.

          Composition of CSC

Managing Director - AfD : Chairman of the CSC

Representative for AfD

Nominee of Secretary to the Ministry of Mahaweli Development & Environment

Nominee of Secretary to the Ministry of Provincial Council and Local Government

Director General, Central Environment Authority

Additional Director General, Department of National Panning

Commissioner General of Land

Director General, Board of Investment

Chairman, SLTDA

A representative from the Western Region Megapolis Planning Project

         

One-Stop-Shop TOR pdf icon

 

FDI Performance

5 year fdi performance

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