16 October, 2021

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Port City Bill Red Flags: Experts Warn Of Economic Zone Will Be Black Money Tax Haven, Parallel Govt In Lanka

Taxation experts and economists are sounding the alarm about the proposed tax-free regime for the Colombo Port City, warning that the exemptions are unlikely to attract foreign investors but could easily turn the reclaimed island into an offshore tax haven and money laundering hub for foreigners and locals alike.

The proposed Port City Economic Zone bill presented to Parliament on Thursday (9) is raising serious questions about whether Sri Lanka is currently being governed by a criminal cartel, using a super majority in Parliament to enact legislation purely to drive profit for a burgeoning class of oligarchs and racketeers.

The bill seeks to establish a parallel governance structure for the Port City adjacent to Galle Face, which will be run by a special Commission appointed by the President. Parliament will have no oversight in the administration of the Port City. Companies and individuals setting up shop in the Port City will be entitled to a 40-year exemption from a slew of Sri Lankan taxes, including levies imposed on casinos and gaming, excise and foreign exchange controls, entertainment taxes, customs levies and income tax.

Renowned political economist and former MIT professor and taxation expert Mick Moore explained in a recent article that global experience had proved that sweeping tax exemptions do not attract foreign investors. Prof. Moore pointed out that foreign investors are far more attracted by the reliability of a tax structure, rather than exceptions that can be removed at the stroke of a pen.

Prof. Moore argued that tax exemptions were unlikely to draw foreign investors to the Port City because tax rates on corporates are already quite low in Sri Lanka with many exemptions for VAT etc.

“There is however a broader question. Port City is intended, among other things, to become a financial services hub. That is an ambitious target. Dozens of governments in the world talk of doing the same thing, but success is rare,” Moore explained.

The Professor said that a successful financial hub requires two things that cannot be quickly achieved. “One is density: a cluster of companies operating within the same niche area of financial services, to generate synergies. The other is probity: a reputation for high quality, honest regulation, supported by a competent and efficient judicial system,” he wrote.

“Without that, the only money that is entrusted is likely to be of very doubtful provenance, and highly mobile,” Prof Moore warned.

He also raised the alarm about the fact investors could opt-in to the Port City tax benefits on activities undertaken anywhere in Sri Lanka, “SUBJECT TO THE AGREEMENT OF THE PRESIDENT OR THE MINISTER IN CHARGE”

“Manufacture brushes in Mawathagama, but pay Port City taxes, i.e. none – no income tax, no value added tax, no excise tax, no debit tax, and no customs duties. Even after five years, there would be little to prevent any company operating in the island from establishing a (shell) affiliated company in Port City and transferring all of its taxable profits to that company,” Professor Moore wrote.

Legal experts have criticized the Government’s decision to table the Port City bill just ahead of the April new year holidays, giving critics less than four days to challenge the draft law in court because of the string of public holidays.

“The all-powerful port city commission could have foreigners on it. There will be foreign arbitrators, compulsory arbitration (I.e. judgment by foreigners) a specialized system of laws (no one country one law) foreign lawyers allowed to practice,” said lawyer Luwie Ganeshathesan on Twitter.

The attorney at law pointed out that foreign involvement in the Port City went beyond everything the SLPP said could not happen in the context of investigations and prosecutions into human rights abuses.

The Rajapaksa led Joint Opposition (JO) raised hell over the inclusion of ‘foreign judges’ in the 2015 UN Human Rights Council resolution, even though the resolution did not specify that the involvement of foreign judges and other experts would be in the context of arbitration or judgment in the cases. At the time, the JO and its self-proclaimed legal experts, including former Justice Minister Wijeyadasa Rajapakshe said including “foreign judges” in an accountability mechanism was a clear violation of Sri Lanka’s constitution.

In Opposition, the Joint Opposition also strongly opposed the Millennium Challenge Corporation (MCC) grant worth over USD 600 million on the basis that it would create a fictional “economic corridor” from Trincomalee to the North Central Province, and Sri Lankans would require a “visa” to cross the corridor and travel to Anuradhapura.

The Government Medical Officers Association and the Bar Association of Sri Lanka strongly opposed the MCC grant and forced a deferral of its signing in 2019 based on sovereignty loss and foreign interference. The Bar Association and the GMOA also strongly opposed the Economic and Technology Cooperation Agreement (ETCA) that was proposed to be signed between India and Sri Lanka, on the basis that it would permit Indian lawyers and doctors to work in Sri Lanka.

“The silence of these groups in the face of the Port City Economic Commission bill only proves that all of that opposition in the past were stage managed affairs and that these professional organizations were really acting as a cat’s paw of the Rajapaksas and their party,” an opposition political activist told Colombo Telegraph. It was also unclear whether these professional organizations were acting as the cat’s paw of a power foreign power with a specific interest in preventing these economic agreements being entered into with India and the US, the activist argued. “It’s as if we only fear interference from India and the West, but when it comes to Beijing and its interests, we open the doors and say welcome, please take our land, accept all these tax concessions and even destroy our precious rain forests and bird sanctuaries for your economic needs,” the activist added. “It is the Rajapaksas after all that has eroded Sri Lanka’s sovereignty most frightfully” the activist said.

A main opposition slumbering on the issues has paved the way for the Government to get away with selling out Sri Lanka the activist added.

Sri Lankan citizens working and living in the Port City will be subject to a totally different set of laws under the proposed Port City Economic Commission Bill, said the activist. (By Chinthika De Silva)

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Latest comments

  • 9
    1

    A penny for the thoughts of Xi Jinping right at that moment about Mahinda in sunnies…………… A sucker is b………….

    • 3
      0

      “Washington. D.C., the city of London, Monaco, and the Vatican all have laws outside the USA, UK, France and Italy.”

      It’s crazy to talk about other people/places ………. this is Lanka.

      Don’t discount our special talents for destruction ………… how the best country in Asia, handed to us, was reduced to a basket case in a mere 70 years!

      If history is any guide this is going to be one mighty cock-up.

      It’s the “Sinhalese-Buddhists” we are talking about here!

      Thank your lucky stars …….. that only 6.9 voted for this …….. and out of 22, 15 million dint buy this bull

      Gotta learn to be thankful for small mercies ……… and look at the brighter side!

      • 2
        0

        Nimal,
        “that only 6.9 voted for this …….. and out of 22, 15 million dint buy this bull”
        I see you’ve taken to the GL Pieria school of mathematics…..

    • 3
      0

      The was the first thing that crossed my mind as well when I saw the picture. Xi seems to have a look of concern bordering on sadness at the thought of what the gorilla in sunnies along with his mates including the one with the silly grin might do with this creation. I genuinely think the Chinese are horrified about the crass greed and stupidity of the clan but just go along because they can be easily manipulated. All it takes is a little kick back and bobs your uncle with this lot. The only thing stupider than the Pakshes are the 6.9M idiots who voted for them and now regretting it.

  • 2
    7

    oh no really ..

    who would have thunk ? we are lucky to have such dedicated journos like this one basket case.

    • 9
      1

      Where are all those stout defenders of Sri Lankan sovereignty, like Potta Eagle, Aussie Laksiri, etc? This Port City will have more power than a mere Provincial Council.
      Don’t get me wrong. I am all for selling whatever can be sold. If it is OK to sell this to the Chinese, why not ask the Tamil Diaspora to buy the North-East?

      • 5
        1

        OC,
        .
        finally you are back. I thought you woul dhave been abducted.
        :
        My friends down there went missing all these days, just because they stood against Rajaakshe-crime politics.

        Please take good care of you.
        :
        LM

        • 2
          1

          LM,
          I didn’t disappear. If you look round CT you’ll see plenty of activity by me, even yesterday.

          • 1
            1

            Good to hear OC.
            .
            Please dont rely on POLTHEL/coconut oil any more. As predicted by me, almost everything is upside down since BPs are back to power.
            :
            My wish is you the goodies be remained unhurt even if that 6.9 mio would be caught by all the unexpected.
            .

      • 0
        0

        OC
        There are other bidders for business in the PC.
        It could become like the Shanghai International Settlement (1863 – 1941).
        *
        On the lighter side, NE will have to be carved up into scores of exclusive regions of control among the Tamil Diaspora to prevent internecine wars.

  • 4
    9

    Washington. D.C., the city of London, Monaco, and the Vatican all have laws outside the USA, UK, France and Italy. Hong Kong was set up by the British to run drugs, money laundering and banking operations. Until The Chinese kicked The British out in 1997. The Chinese know what they are doing. This is tax haven for billionaires of Asia. As Chinese take control of the 21 century. This is not a bad deal for sri Lankans below the age of 20. If they are smart , there is loads of money to be made in the future.

    • 0
      0

      w
      “This is not a bad deal for sri Lankans below the age of 20. If they are smart , there is loads of money to be made in the future.”
      IF THEY ARE SMART– that is where the catch is.
      There are other smart guys out there who will take residence in the PC or its peripheries.
      *
      BTW, are you are under 20?

  • 4
    1

    services, to generate synergies. The other is probity: a reputation for high quality, honest regulation, supported by a competent and efficient judicial system,”
    The current government certainly has NOT heard about PROBITY. Most of the country’s Parliamentarians LACK it.
    Justice system too lacking in it.
    Judiciary gives the VERDICT that the Rulers want. The Politicians are teaching the very WRONG culture to the youngsters of the country which developing into a REAL Banana Republic.

  • 3
    9

    Hong Kong – 2.

    Is it good or bad for SL?

    The best way to find out is to ask Tamils. They know what is good or bad for SL best. If Tamils say it is bad, then it is good for SL. If they say bad, then it is good for SL.

    • 0
      0

      G
      Why have you left out the Muslims?
      What will their opinion tell us?
      They have some of the best business minds in the country.

  • 5
    2

    Gotabhaya is on his next biggest treachery against Mother Lanka.
    First, he issued the Circular No. 01/2020 paving the way for proxy companies to raze down forests and grab lands along rivers and water reservoirs. What will happen next is, these companies will start building canals & dams robbing Sinhalese villagers of their access to water. As a result, the Sinhalese farmers, even Vedda people living in these areas, will have to relocate to other areas looking for water, which seems to be the ultimate heinous goal of the Rajapaksas, so that proxy companies could transfer these lands to foreign companies.
    Land grabs & water grabs are going on at an alarming scale & speed right now. All Sinhalese villagers should be made aware of this treachery and the Sinhalese must fight as one to “STOP THE LAND GRAB & WATER GRAB” orchestrated by the Rajapaksas.
    .
    Gotabhaya’s second biggest treachery is the proposed “Colombo Port City Economic Commission Bill”.
    This Bill is nothing but a “mini-constitution” that gives authority to the Port City to act as a “SEPARATE STATE” which is a serious threat to the sovereignty, security and independence of the “Mainland Sri Lanka”.
    Since 2015, I have written over 100 comments against Port City. Needless to say, we must STOP this “Territorial Bill” at any cost.

    • 0
      0

      C
      “Gotabhaya is on his next biggest treachery against Mother Lanka. First, he issued the Circular No. 01/2020…”
      Nothing else before or after?

  • 3
    0

    So far not read this “Legislation”. From what I find in “Media”, this is an “Experiment” of “GR” in “Decreeing” a “Separate State” adjacent to the capital city of Colombo. Yet to hear from the “Maha Sangha”, (Mahachariya Abetissa, & Co.)”Viyathmaga”(Nalaka Godahewa & Co.) “Yuthukama” (MP Gevindu Kumaratunga, the Grand-Son of Munidasa Kumaratunga, Prof. Nalinda de Silva) AND all other “PATRIOTS’. What has “Prof. Luxman” of the Central Bank of Sri Lanka has to say? Whatever said, this “Legislation” will be passed by the “2/3rd Majority”. Any “Bets”?

  • 2
    3

    Past few years during last givernment ,Sri Lanka was right on centre stage of money laundering as no 01 in the world .
    We should not forget that .

    Well now for a very long time , money laundering, smuggling , etc had always been the system of trade by default in Sri lanka .

    So let the portcity function by its own terms.

    Portcity if it can pay off our debts , strengthen our ruppee offer some good jobs to our people .
    So be it.

    If anyone have better ideas to solve the current crisis,which is part of global,
    as good citizems or MPS let them work independently to help Sri Lanka.

  • 0
    0

    I am completely as a loss how to balance this article with a piece by Mr Rusiripala Tennakoon also in CT. Somebody can do us a big favour by writing a balanced piece.
    The savaging of the Port City Bill now before Parliament by US Ambassador Ms Tiplitz is also a metter for much concer.

    • 0
      0

      Kumar
      Two countries lecture to our government about how it should run its business
      *.
      A government with a spine will tell the ambassador where she gets off.
      No political party protests about such highhandedness.

  • 1
    0

    Port City was a bad idea.
    It was not the brainchild of Mahinda Rajapaksa.
    The idea of such a business centre was mooted much earlier; and was a welcome idea to those with notions of economic development that de-emphasize (if not reject) agricultural and industrial production and the notion of self-reliance. (Interestingly, I was happily surprised this morning to hear that Ronnie de Mel, Finance Minister from1977 to 1988, now prescribes a socialistic economy for the country.)
    Port City will inevitably bring with it many vices that can destroy the fabric of society.
    *
    The environmental factor is important and all governments have played it down, despite pretenses of concern by some leading politicians to the contrary.
    *
    As for totally different set of laws in Port City, they were there in the FTZs for labour and trade union rights, and many cared not two hoots, for they thought that it was a small price to pay for foreign investment.
    One has to be specific about what laws will be unique to the Port City and what their implications will be for any criticism to be credible and effective.
    The public should be fully informed and involved in all aspects.
    Sloganeering will not help, as we have gone too far along this road, and even India wants a slice of the action.

  • 0
    1

    Will Rajah and family bring their boot to this black money hoarding cnew city of colombo. As usual it will be a disaster. I dont know why the yellow robe gang not objecting to this? May benefit them too.

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