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The government has introduced a significantly revised and less generous incentive framework for investors in the Colombo Port City Special Economic Zone (SEZ), slashing lengthy tax holidays and raising investment thresholds.  The new regulations, gazetted on September 20, 2025, signal a major policy shift aimed at balancing investment promotions with the country’s fiscal consolidation goals under its IMF programme. The new rules, cited as the “Colombo Port City (Guidelines on the Grant of Exemptions or Incentives to Businesses of Strategic Importance) Regulations, No. 1 of 2025,” were issued by President Anura Kumara Dissanayake in his capacity as the Finance Minister. They replace the previous, more liberal regulations which expired in August 2025. These new regulations will remain in force for a period of five years. According to Dushyantha Perera, Partner at Sudath Perera Associates, the previous regulations offered “extremely broad” exemptions for up to 25 years, a stark contrast to the tiered and truncated benefits in the new framework. To be designated a Primary Business of Strategic Importance (BSI), investors leasing and developing land must now meet higher capital and employment criteria, divided into four categories. Category A requires a minimum investment of US$ 100 million and the creation of at least 300 jobs. Category B requires a minimum investment of US$ 500 million and 300 jobs. Category C demands a minimum investment of US$ 1 billion and 300 jobs. Finally, Category D is a special category introduced for investments in Marina or Social Infrastructure plots, requiring a lower US$ 25 million investment and 100 jobs. Corporate income tax holidays have been substantially reduced and are now directly tied to the scale of investment. The exemption period commences after the project implementation phase, which typically spans four to eight years, depending on the specific category. Category A projects are eligible for a 10-year tax holiday, Category B for a 12-year tax holiday, Category C for a 15-year tax holiday, and Category D for an 8-year tax holiday. This is a considerable reduction from the previous 25-year corporate income tax holiday, which was also followed by a further 10 years at a concessionary rate or an enhanced capital allowance, as highlighted by Perera. Additionally, he notes that exemptions from Value Added Tax (VAT) have not been granted in the new framework. Primary BSIs will, however, receive exemptions from several other laws, including the Customs Ordinance, Ports and Airports Development Levy Act, and the Sri Lanka Export Development Act, during their project implementation period. For Secondary Businesses of Strategic Importance those not meeting the primary criteria, the changes are equally profound. The new regulations have removed all quantitative and qualitative eligibility criteria, appearing to grant the Colombo Port City Economic Commission discretionary power in designating these entities. The incentive package for Secondary BSIs has been curtailed drastically. Instead of a long tax holiday, they are now only entitled to a concessionary corporate income tax rate of 7.5 percent for just four years after commencing commercial operations. After this period, they will be subject to standard tax laws. This contrasts sharply with the past, where Secondary BSIs also enjoyed 25-year tax holidays, leading to a significant influx of IT and other service companies applying for BSI status in 2023 and 2024, according to Perera. The tightened regulations reflect the government’s commitment to the ongoing IMF programme, which emphasises revenue enhancement and reduced tax exemptions. Perera also noted that the government has indicated a potential removal of the personal income tax (PIT) exemption previously provided for all companies within the Port City. This new, more stringent framework seeks to attract substantial, high-impact investment while ensuring the landmark project contributes more meaningfully to the national treasury.