Sri Lanka urged to cut tax breaks

Oct 23, 2009 (LBO) – Sri Lanka should cut down on tax incentives to attract Foreign Direct Investments (FDI) and concentrate on improving the business climate to maximize the benefits of peace, a senior economist said. Despite vast concessions offered to investors Sri Lanka could only muster 900 million dollars in FDI in 2008. Most direct investments came as upgrades in the celco sector, while FDI to the real economy still remains low.

The Board of Investment (BOI) investment promotion agency estimates a one percent reduction in corporate taxes increases FDI's by two percent.

"FDI flows to the Sri Lankan economy amount to just 1.5 percent of Gross Domestic Product (GDP) while revenues losses due to BOI tax exemptions cost as much as one percent of GDP," Kelegama said.

"So while it certainly has promoted greater investment and more export orientation the BOI tax incentive regime has resulted in an erosion of tax revenue as it has granted, and continues to grant, broad tax incentives."

In paying taxes, Sri Lankan businesses must go through 62 payments that take 256 hours, Kelegama said.

In Singapore, one of the most efficient economies in the world, company's are taxed at 28 percent. The tax p