A revelation about Port City taxes from Deputy Minister Chathuranga, who was embroiled with Shawini

Deputy Minister of Industry and Entrepreneurship Development, Chathuranga Abeysinghe, has become embroiled in a public debate on LinkedIn, following an accusation by a technology sector entrepreneur that the government is continuously changing the tax conditions offered to companies registering in the Colombo Port City Special Economic Zone (SEZ). The Deputy Minister has denied allegations that the Port City's tax conditions have been changed due to strong criticism from investors.

This discussion began based on a post by Shawini Fernando, founder of a Virtual Reality (VR) and web design company. Last year, she applied to register her company in Port City, based on the understanding that no taxes would be levied on companies and employees for a period of three years. However, due to subsequent legal amendments, the relevant applications were withheld, and in a discussion held last December, it was newly informed that a tax rate of 15% for employees and 7% for the company would be imposed. She proceeded to complete the registration process, agreeing to these conditions.

However, Shawini Fernando alleges that these conditions have changed again, and that an income tax rate of 36% has been imposed on employees, applicable to mainland Sri Lanka. Stating that this has completely nullified her initial attraction to invest, she accuses the government of putting investors in a difficult position and has stated that she is re-evaluating moving her business operations to Dubai.

Responding to the post, Deputy Minister Chathuranga Abeysinghe stated that this cannot be considered a private discussion. He mentioned that investors had been informed about the legal amendments by the Port City Commission, and nearly 90 applications had been suspended until the amendments were made. The Minister clarified that according to the amended law, there is no tax disparity between the mainland and Port City, and all individuals are subject to taxes under the Inland Revenue Act.

The Deputy Minister expressed regret over the subsequent confusion, stating that he generally understood that individuals earning foreign income would be subject to a 15% tax rate, and that further clarification would be provided on how this rule applies to approved individuals in Port City. Commenting on this, corporate finance specialist Rasanga Perera pointed out that income received in foreign currency into a Sri Lankan bank account is subject to a 15% tax, while income considered local is subject to a 36% tax. Shawini Fernando confirmed that the higher tax rate was applied to payments made through her company's US dollar account, considering them as local income, which was the root cause of this issue.

Following this incident, a strong debate has emerged among other investors and professionals regarding Port City's competitiveness against regional investment zones. Lawyers and investors, pointing out how places like the Dubai International Financial Centre (DIFC) attract investments by lowering corporate taxes from 25% to zero, emphasize that Sri Lanka must also provide definite stability in its tax policies to attract investments.