The International Monetary Fund (IMF) said it would have preferred the port city of Colombo to draft its tax policy in line with the global minimum tax rate agreed by the Organization for Economic Co-operation and Development (OECD) last year , where Sri Lanka and three other nations remained out of the signings.
The OECD has announced the establishment of a global minimum tax to ensure that no country can offer more attractive tax rates for an individual, company or investment than the other, with the aim of harmonize taxation across the world.
The bloc representing most of the world’s economically well-off countries agreed to set the global minimum tax rate at 15%, which would increase tax burdens for companies operating in low-tax regimes such as Switzerland and Ireland and other countries considered tax havens. in some ways.
Of the 141 countries involved in these negotiations, 137 countries have become signatories to the outline drawn up in October 2021, with the exception of Kenya, Nigeria, Pakistan and Sri Lanka.
At the time, Sri Lanka said it could not support the idea of a comprehensive minimum tax as it needed to attract investment as the country was still in the very early stages of economic development.
However, the IMF in its report published last week encouraged Sri Lanka to align itself with international tax standards, “to avoid negative perceptions”.
“The creation of a low-tax jurisdiction is likely to attract the attention of the international community given the renewed attention given to these issues, particularly in the context of the inclusive framework recently adopted by the OECD (which introduces a global minimum tax of 15% for large multinationals from 2023)”, indicates the IMF staff report in reference to the Colombo Port City project.
“It would therefore be important to adhere to international tax and regulatory standards and information exchange agreements established with foreign counterparts, including those guided by the OECD Common Reporting Standard,” they added.
The Colombo Port City Special Economic Zone Act, which has been the subject of much controversy, empowers a commission which is empowered to grant tax breaks and extended tax holidays such as tax breaks of up to 40 years and exceptions to value added tax, income tax, excise. tax, debit tax, customs duties, port and airport taxes, Sri Lanka Export Development Act levies, betting and gaming laws and labor laws for qualified businesses.
Although this may conflict with the way the IMF and its economists view taxes and tax rates, low tax rates are among the crucial determinants for these nations in their early stages of development to attract wealth. globally in an ethical and legal manner.
However, Sri Lanka must offer much more than low taxes to attract investors, as the country suffers from a lack of globally competitive talent, severe labor shortages, inefficiency and lethargy of the existing workforce, stinky politics and bureaucracy and a rampant culture of corruption, all of which would not put Sri Lanka on the radar of investors.