Sri Lanka has announced plans to end broad tax concessions for the Port City Colombo project, a $1.4 billion venture led by Chinese state-owned firm China Harbour Engineering Company (CHEC), as part of its commitments under the IMF bailout package.

This decision follows the fourth IMF review of Sri Lanka’s extended fund facility, during which the government pledged to amend the Strategic Development Projects (SDP) Act and Port City Act within 2025. The changes aim to introduce transparent, rules-based, and time-bound tax incentives, reducing the length and scope of current tax holidays.

Concerns have been raised over the economic viability of the Port City, which spans 269 hectares and forms part of Beijing’s Belt and Road Initiative (BRI). Critics have pointed out that tax-free salaries for executives and unchecked tax exemptions—even for companies operating outside the Port City—have created unfair advantages and contributed to substantial tax revenue losses.

The IMF staff report cited these overly generous tax holidays as one of the causes of Sri Lanka’s 2022 economic crisis. It also revealed that, despite earlier commitments, the government had granted exemptions to 24 companies between January and September 2024 without IMF consultation, raising fears of tax leakage and money laundering.

The Port City Act is scheduled to be amended by October, and the SDP Act by August, in coordination with IMF staff. These reforms will also seek to ensure only new foreign direct investments qualify for incentives under the Port City framework.

The Chinese firm CHEC, which developed both Port City and the controversial Hambantota port, continues to face scrutiny, especially since its parent company, CCCC, has been under US sanctions since 2020 for its role in militarized constructions in the South China Sea.