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By Ashwin Hemmathagama – Our Lobby Correspondent
Gazette notifications on the shareholder agreement on two joint venture entities which will operate commercial and common user facilities respectively at the Magampura Mahinda Rajapaksa Port, reached Parliament yesterday prior to handing over of the port this weekend.
China Merchants Port Holdings Company Ltd. (CMPort) or its nominees will own 85% and Sri Lanka Ports Authority (SLPA) will own 15% of the stake in Hambantota International Port Group Ltd. (HIPG), which will undertake the project identified to restructure the Magampura Mahinda Rajapaksa Port development and transform it to be a commercially-viable national asset in collaboration with the SLPA with an envisaged investment of $794 million.
Hambantota International Port Services Ltd. (HIPS), which will own common user facilities, will be 58% owned by HIPG, and 42% by the SLPA.
The project entrusted to HIPS will be to developand transform the port to be a commercially-viable national asset in collaboration with the SLPA with an envisaged investment of $606 million. HIPS is tasked to undertake the management of all the common user facilities and services of the Port of Hambantota, including but not limited to, port security, navigational services, pilotage, anchorage, provision of aids to navigation, dredging, widening (capital and maintenance), emergency response and pollution control services.
Minister of Development Strategies and International Trade Malik Samarawickrama issuing Extraordinary Gazette notification No.2048/31 dated 7 December has identified it as a Strategic Development Project and have set seven years deadline for the establishment of HIPG and to commence commercial operations upon approval by resolution of Parliament in terms of Section 3(5) of the Strategic Development Project Act No. 14 of 2008 as amended.
In terms of the Strategic Development Projects Act No. 14 of 2008 as amended, the Government has exempted HIPG on many fronts. The provisions of the Inland Revenue Act, No. 10 of 2006 relating to the imposition of income tax on the project company on the profit, gain and income generated from the activities from the project will not apply for 25 years.
This tax exemption period will commence seven years from the effective date of the Concession Agreement dated 29Julyfor the Port of Hambantota entered between the SLPA, the Government, CMPort, Hambantota International Port Services Company Ltd. and HIPG.
After the expiry of the aforesaid tax exemption period, income tax in respect of the profits, gains and income of the project company will be payable in terms of the provisions of the Inland Revenue Act for the time being in force. However, Economic Service Charge (ESC) will be applicable at the rate of 0.05% of gross operation revenue of the project during the above tax exemption period.
Dividends distributed to the shareholders out of the exempted profit, gain will also be exempted from the income tax during the said tax exemption period of 25 years and one year thereafter commencing from the effective date of the Concession Agreement.
HIPG will be exempted from the payment of Withholding Tax on management fees and royalty payments provided however that the total of such charges does not exceed 3% of the gross operating revenue, on marketing fees, provided however the total of such fees does not exceed 1.5% of the gross operating revenue; and on incentive management fees, provided however the total of such fees does not exceed 3% of the gross operating profit. The Withholding Tax exemption will be valid for a period of seven years commencing upon approval by resolution of Parliament in terms of Section 3(5) of the Strategic Development Project Act No. 14 of 2008 as amended.
However, HIPG will be exempted from the payment of Withholding Tax on interest on foreign loans taken for capital expenditure and on technical fees or service fees paid to consultants for a period of 25 years commencing upon approval by resolution of Parliament in terms of Section 3(5) of the Strategic Development Project Act No. 14 of 2008 as amended.
The expatriate staff of HIPG will be exempted from Payment of Pay As You Earn Tax (PAYE) applicable for a period of seven years, commencing upon approval by resolution of Parliament in terms of Section 3(5) of the Strategic Development Project Act No. 14 of 2008 as amended and subject to a maximum number of 27 employees at any given time.
All imports of project related goods and local purchases of project related goods or services required for the implementation of the project as approved by the Board of Investment of Sri Lanka (BoI), will be exempted from the payment of Value Added Tax (VAT), for a period of seven years commencing upon approval by resolution of Parliament in terms of Section 3(5) of the Strategic Development Project Act No. 14 of 2008 as amended.
The exemption in relation to local purchases and imports will be applicable to HIPG’s contractor or sub-contractor for the purposes of the project. However, the equity transaction or asset transfer that take place for the entry of the investor to Hambantota Port Development Project of HIPG will be exempted from the payment of VAT.
In terms of the Ports and Airports Development Levy (PAL) Act No. 18 of 2011, HIPG will be exempted from the payment and charge of PAL, on the project related goods, as approved by the BoI, imported during the seven years commencing upon approval by resolution of Parliament in terms of Section 3(5) of the Strategic Development Project Act No. 14 of 2008 as amended.
The exemption will be applicable on direct imports by HIPG for the project or on imports by a contractor or sub-contractor for the purposes of the project subject to the conditions referred on chapter 235 of the Customs Ordinance. Import of project related items, other than vehicles used for travelling, as approved by the BoI will be exempted from the Excise Duty Payment during the seven years upon approval by resolution of Parliament in terms of Section 3(5) of the Strategic Development Project Act No. 14 of 2008 as amended. The exemption shall be applicable to HIPG’s contractor or sub-contractor for the purposes of the project.
Import of project related items as approved by the BoI shall be exempted from the payment of CESS in par with Sri Lanka Export Development Act No. 40 of 1979 during the seven years commencing upon approval by resolution of Parliament in terms of Section 3(5) of the Strategic Development Project Act No. 14 of 2008 as amended. The exemption shall be applicable to HIPG’s contractor or sub-contractor for the purposes of the project.
HIPG, the contractor and the sub-contractors shall be exempted from the Nation Building Tax during the seven years commencing upon approval by resolution of Parliament in terms of Section 3(5) of the Strategic Development Project Act No. 14 of 2008 as amended. Provided however, the equity transaction or asset transfer that take place for the entry of the investor to Hambantota Port Development Project of the HIPG will be exempted from the payment of NBT.
On par with Customs Duty on Importation of Project Related Items [Customs Ordinance – Chapter 235] all imports of project related items, other than vehicles used for travelling, will be exempted from the customs duty as approved by the Board of Investment of Sri Lanka, for the purpose of the project during the seven years commencing upon the approval by resolution of Parliament in terms of Section 3(5) of the Strategic Development Project Act No. 14 of 2008 as amended.
The exemption from Customs Duty shall be applicable to all imports of project related items required for the project, whether directly imported by the HIPG or sourced through the contractors or sub-contractors, as approved by the BOI during the seven years, commencing upon approval by resolution of Parliament. The Items in the Negative List shall also be exempted from Customs Duty, provided such items are either not wholly produced in Sri Lanka or are unavailable in sufficient quality, quantity and time lines for project completion.
By Skandha Gunasekara
The Government yesterday successfully passed two resolutions pertaining to the Hambantota port and related development projects.
Two resolutions pertaining to the Hambantota port, under the Strategic Development Project act Nos 1 and 2, were passed with a majority of 65 votes yesterday evening in Parliament.
A total of 72 MPs voted in favor while seven voted against. The JVP MPs and opposition UPFA MPs Vijjitha Berugoda and Indika Anuruddha voted against the resolutions.
Addressing the House on the poor turnout of MPs for the vote, Leader of the House Lakshman Kiriella said, “There were no Joint Opposition MPs present in the Chambers to cast the vote against these resolutions.”
The two main companies operating at the Hambantota port would be legal entities of Sri Lanka even though there was a majority Chinese equity share, Development Strategies and International Trade Minister Malik Samarawickrama told Parliament yesterday.
Taking part in yesterday’s adjournment debate on two resolutions pertaining to the Hambantota Port hand over to the Chinese and the relevant tax concessions, the Minster said that Hambantota International Port Services (HIPS) and Hambantota International Port Group were both registered in Sri Lanka.
“HIPS and HIPG are two companies registered in Sri Lanka. They will operate by our laws like any other company and their assets will remain Sri Lankan. Yes, there is a majority Chinese equity, but both legal entities are Sri Lankan.”
The country would only benefit from the Chinese investments into the Hambantota Port, Ports and Shipping Minister Mahinda Samarasinghe told Parliament yesterday.
Responding to allegations from JVP leader and Chief Opposition Whip Anura Kumara Dissanayake that tax concessions being given to the Chinese investor was a detriment to Sri Lanka, the Minister said that it was it was an internationally followed norm to give tax concession to such large FDIs.
“This $1.12 billion investment is a Foreign Direct Investment. Not only Sri Lanka but many South Asian countries are looking for such large scale FDIs, so it is not unusual to give such tax concessions.”
This exchange took place during yesterday’s adjournment debate in Parliament on the two resolutions pertaining to the handover of the H’tota Port and Government tax concessions granted to the Chinese entity.
The Minister then asserted that Sri Lanka would be receiving another $600 million in FDIs from the same Chinese group in the near future.
“The Hambanotota Port cannot be developed at once. It will take several stages. Sri Lanka can only benefit from this venture,” he added. (SG)
