Sri Lanka government new taxes could deter foreign investment

Sri Lanka's government decision to slap a 15 percent upfront tax on lease of State or private lands to foreigners will deter Foreign Direct Investments (FDI), according to analysts quoted by a local media outlet. Quoting industry experts, Sri Lankan business newspaper Daily FT said that as far as being attractive to FDI, the original move of banning sale of land to foreigners was a setback and the latest measure to impose upfront tax was a fresh blow. "At a time when FDIs are critical to achieve the Government's envisaged 8 percent growth, some of the new measures are counterproductive and lessen the attractiveness as well as dim Sri Lanka's international investor profile," analysts opined. Officials however dismissed the possibility of any impact on the basis that overall attractiveness of post-war Sri Lanka remains intact, if not highly improved. In his 2014 Budget presentation last Thursday, President and Finance Minister Mahinda Rajapaksa recalled that the Government has formulated laws to protect land resources from outright transfers to foreign ownership. "From this year, foreigners can have access to State and private land only through long-term lease arrangements. As infrastructure development has improved the value of all lands, it is necessary to implement a land lease tax structure to protect long-term value of lands. Hence a 15 percent upfront tax will be imposed in the event of lease of State or private lands to foreigners," the president added. According to Central Bank's report released coinciding with 2014 Budget, the realized FDI increased by 19 percent to 540 million U.S. dollars during the first half of 2013. It said more FDI flows are expected during the second half of the year with the finalization of negotiations and the granting of approvals for a number of projects that have been in the pipeline. Last year Sri Lanka attracted only 1 billion U.S. dollars in FDI whilst the target for 2013 has been set at 2 billion U.S. dollars. Investment Promotion Minister Lakshman Yapa Abyewardena said earlier this month that the realized FDI had already reached 1 billion U.S. dollars and with the start of some already signed projects; Sri Lanka will be able to achieve its 2 billion U.S. dollars FDI target for this year.