The Colombo Port City Economic Commission (Amendment) Act, No. 1 of 2026 was certified on 20 January 2026 and represents the first amendment to the Colombo Port City Economic Commission Act, No. 11 of 2021.

This Amendment Act introduces important changes, particularly in relation to tax incentives, employment income taxation, offshore banking regulation, and fiscal governance within the Colombo Port City framework.

Set out below is a summary of the key changes introduced by the Amendment Act and their practical impact, especially from a tax and compliance perspective.

1. Employment Income Tax Exemptions

Original Act (2021)

• The Act empowered the Commission to grant incentives to Businesses of Strategic Importance (BSIs), including:

  • Employment income tax exemptions for employees of authorized persons that qualify as BSIs.

  • Broad tax neutrality on employment income paid in foreign currency.

• The original Act did not explicitly impose a time limit on employment income tax exemptions for authorized persons.
  In practice, this resulted in open-ended incentives if approved.

Amendment Act (2026)

• Introduces a time-bound period for employment-related tax exemptions:

  • Existing authorized persons (approved before amendment) may enjoy tax exemptions for three years.

  • New entrants (approved on/after commencement) are not eligible for tax exemptions on employment income.

• The Act explicitly bases the three-year window on the period “commencing from the month immediately following” the operation month (Feb 1, 2026–Jan 31, 2029).
  This precise rule does not exist in the original Act.

Impact

• Removes open-ended employment tax exemptions.

• Places a hard sunset on historic incentives while preventing new open-ended tax exemptions.

• Improves predictability for tax authorities and investors.

2. Strategic Business Incentives (Corporate Tax)

Original Act (2021)

• Allowed the Commission, in consultation with relevant Ministers, to grant tax exemptions and incentives to BSIs.

• Incentives could include:

  • Corporate tax holidays

  • Exemption from import and excise duties

  • Other forms of tax relief

• The Act did not provide clear maximum durations or structured tax rules within the Act text itself; rather, it provided discretionary powers to the Commission.

Amendment Act (2026)

• Introduces structured time limits and performance conditions for tax incentives:

  • Incentives are time-bound.

  • Require technical analysis by the Ministry of Finance.

  • Are subject to five-year reviews.

  • Performance non-compliance can lead to suspension or withdrawal of incentives.

• Reflects global move toward transparent, performance-based incentives (supported by public finance committee debates).

Impact

• Reduces scope for indefinite tax exemptions.

• Aligns Port City incentives with fiscal sustainability and public scrutiny.

3. “Tax Expenditure Reporting” & Transparency

Original Act (2021)

• Did not require public reporting of tax incentives or a formal publication of tax expenditure figures.

• Limited explicit requirements for disclosure of incentives.

Amendment Act (2026)

• Requires:

  • Ministry of Finance to publish annual tax expenditure reports relating to Port City incentives.

  • Commission to publicly disclose performance outcomes and fiscal impacts.

• Key new transparency mechanism.

Impact

• Helps Parliament and the public understand revenue foregone due to incentives.

• Strengthens accountability and evidence-based policy evaluation.

4. Foreign Currency & Tax Implications

Original Act (2021)

• Allowed payments in designated foreign currencies within the Port City.

• No explicit integration with the Foreign Exchange Act, i.e., the Act was silent on tax treatment where forex is involved.

Amendment Act (2026)

• Now expressly requires that foreign currency payments must comply with the Foreign Exchange Act, No. 12 of 2017.

• Aligns currency transactions with exchange control law, affecting payrolls and cross-border payments.

Impact

• Closes a legal gap that could cause conflicts between tax and forex law interpretations.

5. Offshore Banking / Financial Sector and Tax Compliance

Original Act (2021)

• Provided for offshore banking, but oversight and compliance obligations were less prescriptive.

• Tax treatment of offshore operations was broadly under the Commission’s discretion.

Amendment Act (2026)

• Strengthens Central Bank of Sri Lanka (CBSL) authority over offshore banks.

• Requires offshore banks to:

  • Follow CBSL-approved capital and liquidity standards

  • Comply with stricter audit, reporting, and transparency

  • Submit disclosures (potential tax compliance implications)

• Greater emphasis on fiscal discipline and alignment with international banking standards.

Impact

• Adds rigor to financial sector compliance, including tax reporting and enforcement.

• Reduces risks of regulatory arbitrage through offshore banks.

In Summary: Key Differences

Practical Takeaways for Readers

• Employment tax exemptions are no longer automatic or indefinite.

• All tax incentives must be justified, time-limited, and monitored.

• The amendments reflect a shift toward fiscal transparency and robust compliance.

• Investors and tax practitioners must adjust:

  • Payroll tax planning

  • Corporate tax incentive structuring

  • Incentive documentation and performance tracking

Colombo Port City Economic Commission (Amendment) Act, No. 1 of 2026