New Kelani Bridge to Athurugiriya Highway gets sweeping tax breaks
By Mario Andree
The Government has decided to offer the elevated highway from New Kelani Bridge to Athurugiriya via Rajagiriya constructed by China Harbour Engineering Company (CHEC) sweeping tax benefits inline with the Strategic Development Act. This project is one of the largest foreign investments in the road sector with a committed investment of US$ 821.6 million and is expected to be financed, with an equity contribution of US$ 246.50 million, a loan of US$ 575.10 million, to be made during the three years of construction.
CHEC-NKBA Elevated Highway (Pvt) will build the highway in three years, operate and maintain the project for 15 years and then hand it over to the Ministry of Highways. As per the SDP Act, the profit and income generated by the Project will be exempted from Corporate Income Tax under the Inland Revenue Act, No. 24 of 2017 during the construction period of three years and the operational and maintenance period of 15 years, after the construction period. Tax on dividends for the shareholders of the Project in relation to the distribution of dividend income will be exempt during the operational and maintenance period of 15 years and one year thereafter.
The Project will be exempt from the payment of Withholding Tax (WHT) on the interest of foreign loans taken for capital expenditure, on fees paid to Consultants (up to 40 consultants in the construction period of three (3) years and up to 20 consultants in the maintenance period, On Management Fees and Royalty Payments (not exceeding five per cent of the total project cost during construction period of three years and not exceeding two per cent of the total project cost during the maintenance period.
The shareholder of the Project and the Project Company will be exempt from the payment of Capital Gains Tax during the construction period of three years and the operational and maintenance period. During the construction period, 40 expatriate employees and 20 employees during the operational and maintenance period will be exempt from paying income tax arising from the gains and profits from employment in relation to the Project. All imports of project-related goods as approved by the Board of Investment of Sri Lanka and services required for the implementation of the Project will be exempt from Value Added Tax (VAT) in addition to VAT on local purchases for the project will be deferred.
Further, the semi-annuity service payment by the Government to the Project Company including interest income receivable under the Concession Agreement will be exempt from VAT during the operational and maintenance period. The Project Company will be exempt from the charge and payment of Ports and Airports Development Levy (PAL), Excise Duty, CESS and Customs Import Duty during the construction, operation and maintenance period.