Tax, incentives and the Business of Strategic Importance

Incentives are not available to every business in the Area of Authority. They attach to a business identified as a Business of Strategic Importance under section 52, on criteria to be prescribed, having regard to the national interest or the advancement of the national economy.

Where a business is so identified, exemptions may be granted in full or in part from all or any of the enactments in Schedule II. Since 2026, any tax-related exemption is subject to technical analysis by the Ministry of Finance with technical input from the Commission — section 52(3A) — and the grant itself is embodied in the section 32 agreement.

Schedule II — enactments from or under which exemptions or incentives may be granted

No.	Enactment
1	Inland Revenue Act, No. 24 of 2017
2	Value Added Tax Act, No. 14 of 2002
3	Finance Act, No. 11 of 2002
4	Finance Act, No. 5 of 2005
5	Excise (Special Provisions) Act, No. 13 of 1989
6	Customs Ordinance (Chapter 235)
7	Ports and Airports Development Levy Act, No. 18 of 2011
8	Sri Lanka Export Development Act, No. 40 of 1979
9	Betting and Gaming Levy Act, No. 40 of 1988
10	Termination of Employment of Workmen (Special Provisions) Act, No. 45 of 1971
11	Entertainment Tax Ordinance (Chapter 267)
12	Foreign Exchange Act, No. 12 of 2017
13	Casino Business (Regulation) Act, No. 17 of 2010

Sections 52 and 53. Designation as a BSI does not grant exemption from all thirteen; the Gazette Order under section 53(3) specifies which apply.

What is prescribed, and where to find it

Section 52(2) identifies a Business of Strategic Importance "according to criteria to be prescribed", and section 52(7) as substituted in 2026 provides that the period of validity of any exemption or incentive "shall be as prescribed". Neither criterion nor period is in the Act. Both are in regulations: the Colombo Port City (Guidelines on the Grant of Exemptions or Incentives to Businesses of Strategic Importance) Regulations, No. 1 of 2025, made by the Minister of Finance under section 71 read with section 52 and published in Gazette Extraordinary No. 2454/62 of 20 September 2025. Regulation 8 gives them a life of five years from their coming into operation, unless earlier repealed or amended. Regulation 2 confines them to businesses identified on or after that date, so a designation made under the earlier guidelines keeps the package it was given.

The sequence matters. Regulations No. 1 of 2025 were made while section 52(7) still capped the period of validity at forty years. Four months later the 2026 amendment removed that ceiling and made the period whatever is prescribed. The regulations did not change; their constitutional position did. What was previously a prescribed figure operating beneath a statutory maximum is now the only source of the number.

Regulation 3 draws the line between Primary and Secondary. A Primary Business of Strategic Importance is an authorised person that invests to lease and develop a plot of land within the Area of Authority and meets one of four thresholds, each pairing a minimum investment per plot with a minimum number of employment opportunities. Anything identified as a Business of Strategic Importance that does not meet one of them is Secondary — regulation 5.

Primary Business of Strategic Importance — the prescribed categories

Category	Minimum investment per plot	Minimum jobs	Income tax holiday	Max. implementation period
A	US$ 100 million	300	10 years	5 years
B	US$ 500 million	300	12 years	6 years
C	US$ 1,000 million	300	15 years	8 years
D	US$ 25 million, in plots designated for the Marina or for Social Infrastructure	100	8 years	4 years

Regulations No. 1 of 2025, regulations 3 and 4 and Tables 1 and 2, read in Gazette Extraordinary No. 2454/62. A pro-rated investment in a subdivided plot, under the Colombo Port City (Development Control) Regulations, counts. The income tax holiday commences on expiry of the project implementation period, which runs from the section 53(3) Gazette Order to the earlier of the Certificate of Conformity and the maximum in the last column. Reproduced to show the shape of the test, not to answer it for any plot.

What each designation actually carries

A Primary Business of Strategic Importance is exempt from the Customs Ordinance, the Ports and Airports Development Levy Act and the Sri Lanka Export Development Act during the project implementation period; exempt from corporate income tax under the Inland Revenue Act for the years in Table 1, commencing on expiry of that period; and exempt from the Betting and Gaming Levy Act, the Entertainment Tax Ordinance, the Foreign Exchange Act and the Termination of Employment of Workmen Act from the date of the section 53(3) Gazette Order — regulation 4. A Secondary Business of Strategic Importance is exempt from the first three enactments until commercial operations commence, pays corporate income tax at a concessionary 7.5 per cent for four years from that date, and is exempt from the Entertainment Tax Ordinance, the Foreign Exchange Act and the Termination of Employment of Workmen Act from the Gazette Order — regulation 6. In each case the proviso is express: after the period, tax is payable under the laws for the time being in force. Regulation 7 adds that the incentives are not negotiable and not renewable. Material still circulating with "up to 23 years", "25 years" or "40 years" on it is describing a regime that these regulations, and then the 2026 amendment, replaced.

How a designation is actually made

01IdentificationThe Commission, in consultation with the President or the assigned Minister, identifies the business according to prescribed criteria — section 52(2).
02Technical analysisTax-related exemptions are subject to technical analysis by the Ministry of Finance, with technical input from the Commission — section 52(3A).
03RecommendationThe Commission recommends designation and the grant of exemptions to the President or assigned Minister — section 53(1).
04CabinetThe President or Minister, in consultation with the Minister of Finance, informs Cabinet of the rationale, the specific Schedule II exemptions proposed, the commencement and cessation dates as prescribed, and the applicant's name — section 53(2).
05GazetteWithin two weeks of Cabinet approval, an Order is published in the Gazette specifying the same particulars — section 53(3).
06AgreementThe exemptions are embodied in the section 32 agreement between the Commission and the authorised person — section 52(4).

Sections 52 and 53, as amended.

Incentives are now monitored, reviewable and withdrawable

Sections 52A to 52E, inserted in 2026, are the provisions a sponsor should read before a board paper is written. The Commission evaluates ex-post performance against key performance indicators and publishes outcomes and fiscal impacts on its website. Failure to meet approved indicators triggers a notice of non-compliance specifying the failure, a time frame for corrective action, a directive, and where appropriate a compliance plan. If corrective action is not taken in time, the Commission may restrict, suspend or revoke any or all exemptions, or impose administrative penalties to recover the loss — after a show-cause notice, one month to respond, and an opportunity to be heard. Separately, the Ministry of Finance may review the tax holiday period and the incentives themselves every five years.