CID, PAL, SSCL, and VAT drive massive tax breaks as manufacturing and services dominate exemption landscape
Sri Lanka has granted a staggering Rs. 120.7 billion in tax exemptions to Board of Investment (BOI) companies and Port City projects during the first five months of 2025, underscoring the state’s ongoing strategy to incentivize foreign investment through generous fiscal relief.
According to the Finance Ministry’s latest tax expenditure report, nearly the entire sum—Rs. 120.5 billion—was granted to BOI companies through trade-related duty exemptions. Only Rs. 131.3 million of the total was attributed to Port City entities, highlighting the dominance of traditional BOI-linked activity in Sri Lanka’s tax expenditure profile.
CID, PAL and SSCL Lead the Way
Among the various tax instruments, Customs Import Duty (CID) and surcharges accounted for Rs. 36 billion, while the Ports and Airport Levy (PAL) made up Rs. 30.3 billion in exemptions for BOI companies. The Social Security Contribution Levy (SSCL) also featured prominently, with Rs. 31.8 billion in waived contributions.
Port City companies, while still in their early development stages, received CID exemptions amounting to Rs. 59.9 million, forming the bulk of their overall tax relief.
VAT Relief Adds Billions
The Value Added Tax (VAT) exemptions, channeled through the Inland Revenue Department, further supplemented the tax breaks. In just the first quarter of 2025, BOI companies benefited from Rs. 9.8 billion in VAT exemptions, while Strategic Development Projects (SDPs) received Rs. 628 million.
A sectoral breakdown revealed that manufacturing-related BOI companies were the largest beneficiaries of VAT relief, claiming Rs. 5.9 billion, followed by services and utilities at Rs. 2.5 billion.
For comparison, in 2024, the total VAT exemption given for BOI and SDP projects reached Rs. 38.5 billion, with Port City projects alone receiving Rs. 190.4 million. In 2025’s first quarter, Port City VAT exemptions stood at Rs. 10 million.
Balancing Investment and Revenue
While these exemptions reflect a policy focus on attracting investment and accelerating development, analysts and policymakers are increasingly scrutinizing the long-term revenue implications of such sweeping tax relief. As Sri Lanka works toward economic recovery and fiscal consolidation, the effectiveness and sustainability of these exemptions will remain a key area of debate.