Sri Lanka’s investment promotion regime is carrying a substantial fiscal cost, with tax concessions granted to Board of Investment (BOI) enterprises and Strategic Development Projects (SDPs) amounting to more than Rs. 276 billion across several tax categories, according to the Finance Ministry’s latest Tax Expenditure Report.
The figure, however, should not be read as a single-period revenue loss. The report covers different tax periods, making the aggregate a compilation of tax expenditure recorded across separate periods rather than a measure of concessions granted during one year.
Corporate income tax data cover the 2024/25 basis year, while Value Added Tax (VAT) figures cover the first quarter of 2026. Customs Import Duty (CID), Ports and Airports Development Levy (PAL), and CESS figures extend through the end of May 2026.
The distinction is significant because the data also do not measure what Sri Lanka receives in return for these concessions. The report does not quantify investment generated, jobs created, exports earned or other economic benefits attributable to the incentives. As a result, the figures alone cannot establish whether the concessions have produced a positive or negative net economic return.
Corporate income tax represents the largest component. BOI enterprises generated estimated tax expenditure of Rs. 171.37 billion in 2024/25, calculated against the standard 30% corporate income tax rate. The underlying BOI tax base was slightly above Rs. 1 trillion.
Enterprises taxed at 14% accounted for the largest share, with a tax base of Rs. 623.26 billion and estimated tax expenditure of Rs. 99.72 billion compared with the standard rate. A further Rs. 52.97 billion in expenditure arose from enterprises subject to a zero corporate income tax rate.
SDPs added another Rs. 18.39 billion in corporate income tax expenditure. Their Rs. 61.28 billion tax base was subject to a zero tax rate, compared with the 30% standard rate used in calculating the expenditure.
The concessions extend to imports. Customs data show BOI enterprises received Rs. 76.13 billion in concessions on CID, PAL and CESS through May 2026. CID accounted for Rs. 36.86 billion, PAL Rs. 23.05 billion and CESS Rs. 16.22 billion.
SDPs recorded a further Rs. 886 million in expenditure on the three border taxes, while Colombo Port City-related concessions amounted to Rs. 24.3 million during the same period.
VAT concessions add another layer. BOI VAT tax expenditure reached Rs. 9.58 billion during the first quarter of 2026, based on taxpayer declarations, against a tax base of Rs. 53.2 billion.
Manufacturing accounted for the largest share, led by “Manufacturing – Others” at Rs. 5 billion. Wholesale and retail services followed with Rs. 3.45 billion, while textiles and garments accounted for Rs. 349 million.
The figures underscore the scale of Sri Lanka’s investment incentives—and raise a central policy question: whether the economic benefits generated by these concessions are large enough to justify their considerable cost to public revenue.