Residential real estate developments in Colombo Port City currently benefit from a range of tax exemptions and incentives, which create a highly distortionary and unequal tax regime for real estate businesses operating elsewhere in Sri Lanka, the Advocata Institute warned.

Both previous regulations (Gazette No. 2343/60 of 4 August 2023) and recent regulations (Gazette No. 2454/62 of 20 September 2025) issued under the Colombo Port City framework provide a wide range of tax exemptions and incentives to qualifying businesses. All four companies currently registered with the Port City Commission as real estate developers are classified as Primary Businesses of Strategic Importance (PBSIs) and benefit from a variety of tax exemptions for varying durations.

For example, Prime Melwa Port City (Pvt) Ltd and Home Lands Port City (Pvt) Ltd receive 10-year exemptions from corporate income tax following the expiry of their respective project implementation periods, while Marina Hotel Holdings (Pvt) Ltd receives an 8-year exemption. ICC Port City (Pvt) Ltd receives a broader package, including exemptions from income, profit, dividend and withholding taxes for 25 years, followed by a 50% reduction in the prevailing corporate tax rate for a further 10 years. All four companies also receive exemptions from customs duty, the Ports and Airports Development Levy (PAL) and Cess on approved business-related imports during their project implementation periods, while ICC Port City receives these exemptions for 25 years. ICC Port City additionally receives a 25-year exemption from VAT on approved business-related imports and local purchases of goods and services.

Such preferential treatment creates a distortion between otherwise similar businesses based solely on location, allowing residential real estate developers within the Port City Zone to face a substantially lower tax burden than comparable developers elsewhere. This is particularly difficult to justify given Port City’s inherent locational and infrastructure advantages, including oceanfront properties, a planned urban environment and dedicated access from the Katunayake Expressway through the Port Access Elevated Highway (PAEH), which can independently attract investment. Rather than providing additional tax exemptions, the government should focus on addressing the governance and regulatory bottlenecks that Advocata has previously identified as constraints to investment.

More broadly, tax incentives should be justified by demonstrable economic benefits that would not otherwise arise in their absence. Such incentives may be warranted where an investment generates substantial positive externalities, with benefits extending beyond the investor to the wider economy or community, or where it produces significant catalytic effects such as knowledge spillovers, industrial development or other economy-wide benefits. Based on publicly available information, however, there appears to be limited evidence that the residential developments currently proposed in Port City generate such benefits on a scale that would justify preferential tax treatment.

The distributional impact of these tax exemptions also warrants concern. Given that typical projects are completed within three to five years, many of the concessions effectively cover the full development period. However, lower development costs do not necessarily translate into lower prices for buyers, particularly where the resulting properties are targeted towards higher-income purchasers. Residential developments currently being marketed in Port City are predominantly positioned as luxury housing, with apartments reportedly priced at around US350 per square foot. These prices are substantially higher than housing aimed at middle- and lower-income households in Colombo, where prices are reportedly closer to US$100 or less per square foot, equivalent to approximately LKR 30–33 million for a typical unit. There is therefore limited justification for assuming that these tax concessions will improve housing affordability or generate significant broader benefits for consumers.

Tax exemptions provided during the construction and development process can reduce costs for these projects, even though the resulting properties are primarily targeted towards higher-income households, which account for just 0.1% of households in Sri Lanka, or approximately 6,000 families. At the same time, residential property developments outside the Port City that serve middle-income, upper-middle-income and lower-income households do not receive equivalent concessions. This raises questions about whether the resulting tax expenditure represents an efficient use of public resources.

If tax incentives are intended to encourage investment and support housing development, there is no clear justification for providing them to selected real estate developments based solely on their location within Port City, while comparable developments elsewhere face the ordinary tax regime.

A cornerstone of this government’s electoral mandate was its pledge to eradicate corruption and uphold high standards of governance. The continuation of tax concessions and exemptions like these that are difficult to justify on economic grounds risks raising serious questions about the integrity of the policymaking process and whether policy decisions are sufficiently aligned with the broader public interest. It could also heighten concerns about regulatory capture, particularly where institutions responsible for safeguarding the public interest are perceived to be unduly influenced by the interests they are meant to regulate. Such perceptions can erode public confidence and weaken the credibility of the government’s broader reform agenda.

The government should therefore review these tax expenditures based on their actual investment benefits, fiscal cost and distributional impact. Existing commitments under the Colombo Port City framework should not prevent the reassessment of incentives that are economically distortionary or fiscally unsustainable. No agreement should be regarded as untouchable, especially when it risks enabling unjust enrichment, particularly when the wider population has borne the burden of over 70% inflation and a sovereign default. Going forward, real estate development projects should not be granted PBSI status.

The Advocata Institute is an independent policy think tank in Sri Lanka that advocates for national prosperity through economic freedom.

By Hiran H. Senewiratne

The CSE’s All Share Price Index began to decline yesterday due to continued global tensions. From this viewpoint, the attacks on Saudi Arabia’s central Airport proved vital.

The All Share Price Index went down by 26.28 points, while the S and P SL20 rose by 6.74 points.

Turnover stood at Rs 1.19 billion with four crossings. Those crossings were: Ceylon Hotels Corporation, crossed 20 million shares to the tune of Rs 600 million; its shares traded at Rs 30, Commercial Bank 150,000 shares crossed for Rs 30 million; its shares traded at Rs 199, CIC Holdings 925,000 shares crossed for Rs 25 million; its shares traded at Rs 26.60 and Hayleys 117,000 shares crossed for Rs 23 million; its shares sold at Rs 198.

In the retail market top seven companies that mainly contributed to the turnover were: Hemas Holdings Rs 29 million (943,000 shares traded), RIL Properties Rs 21 million (1 million shares traded), HNB Rs 21 million (54000 shares traded), JKH Rs 20 million (1 million shares traded), LOLC Rs 19.8 million (480,000 shares traded), Sierra Cables Rs 17 million (514,000 shares traded) and CCS Rs 15 million (131,000 shares traded). During the day 46.6 million share volumes changed hands in 12664 transactions.

It is said that hotel sector counters, especially Ceylon Hotels Corporation performed well, while in the banking sector, especially Commercial Bank and HNB performed well. In the manufacturing sector, JKH and Sierra Cables performed notably.

Meanwhile, Lion Brewery (Ceylon) PLC announced a first interim dividend of Rs 40.30 per ordinary share for the financial year ending March 31, 2027. The total dividend payout amounts to Rs 3.224 billion, with the entitlement date set for October 21, 2026.

Yesterday the rupee was quoted at Rs 330.80/331.00 to the US dollar in the spot market from Rs 330.85/95 the previous day, while bond yields were broadly steady, dealers said.

Sri Lanka’s national economic discourse takes center stage today as the country’s premier private-sector body, The Ceylon Chamber of Commerce, hosts the Sri Lanka Economic & Investment Summit 2026 at the Shangri-La Colombo.

Convening on October 12 and 13, the two-day summit brings together an influential gathering of senior policymakers, international financiers, multilateral development partners, and private-sector captains to chart the island’s next phase of macroeconomic growth.

Held under the theme “Positioning Sri Lanka in a Changing Global Economy: Resilience, Reform, and the Future of Economic Policy,” this year’s forum marks a critical inflection point in the nation’s post-crisis trajectory.

As Sri Lanka shifts its emphasis from immediate financial stabilization toward sustainable, long-term expansion, the summit aims to address the structural imperatives necessary to secure high-impact foreign direct investment (FDI), deepen regional trade integration, and unlock emerging sectors of economic activity.

The core agenda over the two days focuses on building resilience across volatile global market cycles while executing targeted policy reforms. Key working sessions will examine:

Regional Value Chains & Trade Integration: Leveraging Sri Lanka’s strategic Indian Ocean geography to capture higher-value export flows and commercial linkages.

Energy & Infrastructure Transformation: Accelerating renewable energy integration and modernizing national utility policy.

Digital Economy & Public Modernization: Deploying digital technologies across public administration and financial services to enhance operational efficiency and transparency.

Sectoral Priorities: Modernizing healthcare infrastructure and agricultural value-addition to build a robust domestic economic base.

A defining feature of this year’s summit is the strong convergence between state policy and global commercial expertise. Keynote addresses and panel discussions will feature prominent leaders, including Prime Minister Dr. Harini Amarasuriya and T. Krishnakumar, Chief Executive Officer of Reliance Consumer Products Ltd.

They will be joined by senior delegations and policy experts from major global institutions, including:

= The Asian Development Bank (ADB)

= The International Finance Corporation (IFC)

= Standard Chartered Bank

= Zydus Lifesciences

The active participation of the country’s highest executive and legislative leadership across both days underscores a clear policy commitment to private-sector-led growth. By establishing a direct, high-level platform for dialogue between investors and policymakers, the Ceylon Chamber’s summit seeks to refine regulatory frameworks, improve the ease of doing business, and establish a clear, predictable environment for capital formation in the years ahead.