With the IMF recommending that BOI tax holidays should be rationalized on the basis that the war is over and therefore there is no need for such incentives to attract foreign investments (see last week’s The Sunday Leader issue) these pages, carrying an article in its issue of October 4, 2009 under the heading “FDI down 78% if concessions cut,” coupled with the above heading as a strapline, had this to say: Quote, “BOI has warned the IMF that the disallowance of BOI incentives to foreign investors would result in foreign direct investment (FDI) falling from a record US $ 889 million made last year (2008) to US $ 200 million (annual average FDI), a 78% decline.
In a report presented to IMF representatives at the Central Bank office in Colombo last Thursday (September 22, 2009), BOI officers claimed that when the then government withdrew BOI tax holidays in 1995, FDI plummetted from US $ 170 million recorded the previous year (1994), to US $ 13 million in 1995, a 92% drop, forcing the government of the day to reintroduce BOI incentives in order to attract FDI into the country the following year (1996). These incentives have largely remained unchanged since. BOI in that report also highlighted that the World Bank in its “Ease of Doing Business Index” released last month (September 2009) had ranked Sri Lanka 105th out of 184 countries, and in the “Paying Taxes” sub category under the same index, had ranked the island 164th. BOI incentives come in the form of tax holidays and the allowance for such investors to import capital goods duty free…
…the Government has given a pledge to the IMF that it will increase revenue by 2% of GDP (Rs. 100 billion) by 2011, thereby clinching a US $ 2.6 billion standby arrangement from the fund recently.
Sources said that IMF officers were noncommittal at that presentation. Among the others who had been there at the presentation were Central Bank, Inland Revenue Department and members of the Tax Commission, they said. In order to boost tax income, the BOI has recommended the lowering of the corporate tax bracket from the current 35% to 25%, thereby encouraging investments, and by so doing, being able to widen the tax base on the basis, that the low tax barrier would encourage more investors into the island, which then would translate to increasing the numbers of employed, therewith providing further conduits for the government to enhance tax revenue. BOI is expected to make a presentation to the president in this connection shortly.” Unquote
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