Adani-jkh container terminal gets 25-year tax holiday

„The project will be 30 percent financed by equity and 70 percent by debt, which will be a foreign loan „Imported material will be free from VAT, import duty, Port and Airport Development Levy „Up to 20 expatriate employees will get tax exemption on salar

nder the Strategic Development Projects Act, the government has granted a 25-year tax holiday for the proposed West Container Terminal (WCT) at the Port of Colombo to be built by India’s Adani group with its local partner, John Keells Holdings PLC (JKH) at an estimated cost of US$ 650 million on a buildoperate-transfer (BOT) basis. Prime Minister, Mahinda Rajapaksa in his capacity as the Minister of Economic Policies and Plan Implementation on 30th of July this year declared WCT as a Strategic Development Project by issuing a government notification.

“…. Development and Operation of West Container Terminal- I (hereinafter referred to as “WCT-I”) project under the Colombo Port Expansion project with an envisaged investment of US$ 650 million with the aim of consolidating Colombo Port’s position as a transshipment hub for the South Asian Region by providing sufficient container handling capacity and adequate depth for new-generation vessel,” the notification said.

The envisaged investment of the project is to be financed on a debt to equity ratio of 70:30, and the entire portion of debt is expected to be financed by a foreign loan, according to the notification. JKH recently revealed that it estimates to make an investment of US$ 70-80 million in the project.

According to JKH, the initial work of the project including finalisation of the project design and costs and other structuring arrangements are moving ahead in line with the Letter of Intent (LOI) executed among Adani, JKH and Sri Lanka Ports Authority (SLPA).

Further, the notification reaffirmed that WCT would be developed on a BOT basis for a period of 35 years as a public-private partnership (PPP) in three stages, where Adani is expected to hold 51 percent stake followed by 34 percent stake by JKH and 15 percent by the SLPA.

With the tripartite BOT agreement is expected to be signed shortly, the government has published required conditions to secure the 25-year income tax holiday and other tax exemptions with an aim to become fully operational in five years.

Once the BOT agreement is signed, the project company is required to complete the construction of the first 600-metre length of quay wall and specified terminal area including requisite infrastructure within a period of 36 months in order to commence operations.

As the second phase, the project company would be required to commence operations of the full length of the quay wall of 1,400 m within 48 months.

Ultimately, it is required for the project company to commence operations of the terminal at fullscale within 60 months from the date of the BOT agreement.

Accordingly, the project company would be given a 25-year tax holiday starting from the first year of profits or two years after starting commercial operations.

“The said tax exemption period shall commence from the first year in which the project company makes taxable profits or two (02) years after commencement of commercial operations, whichever occurs earlier. Provided that after the expiry of the aforesaid tax exemption period income tax in respect of profits, gains and income of the project company shall be payable in terms of the provisions of the Inland Revenue Act for the time being in force,” it noted.

Along with this, dividends distributed and received by shareholders out of the exempted profit, gains would also be exempted from income tax during the 25-year tax holiday period and additional year thereafter. Further, the project company is also to be exempted from Withholding Tax on interest on foreign loans taken for capital expenditure and on technical fees paid to consultants employed in the project. In addition, up to 20 expatriate employees of the terminal company are also to be exempted from income tax on their salaries for five years. Meanwhile, all project-related imports subject to the approval of the Board of Investment (BOI) would be released from Value Added Tax (VAT), Ports and Airports Development Levy (PAL), CESS and import duties for a five-year period after signing the BOT agreement.

If an imported item is placed on a negative list, the document noted that the BOI could consider duty exemptions.

“However, any importation of items in the Negative List shall be considered by the BOI where such items are either not wholly produced in Sri Lanka or are not available in sufficient quality, quantity and time line for project completion,” the notification stated.