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D.M.R.U.DISSANAYAKECM/2014/030WhereweshoulddirectFDI/policyinitiativesIncreasedforeigndirectinvestmentisvitalfortheeconomicdevelopmentofthecountry.ItisnotmerelyanincreaseinFDIthatisneededbutalsoinvestmentinkeyareasofmanufacture,Infrastructure,servicesector,tourismandtelecommunicationetc.HenceSriLankangovernmentshoulddirectFDIinfollowingareasinordertogainmaximumbenefittothecountry.ThetourismsectorisapromisingsourceofFDIwithtwomilliontouristsperyearvisitingSriLanka.Hence,governmentshouldsubstantiallyinjectFDItoInternationalhotelfranchisestoexpandtheirpresence.Infrastructuredevelopmentinports,watersupply,wastemanagementandconnectivitywereidentifiedasareasthegovernmentwantedtodevelopwiththeideaofattractingFDItothecountry,astheircontributiontowardseconomyiswaybehindthanweexpected.AlsogovernmentshoulddirectFDIinvestmentinsectorssuchaslogistics,informationtechnologyenabledservices,andhigh-value-addedfoodprocessingandapparel.Otherthanthat,Governmentshoulddirectmanagementofeconomiczonestoprivatecompanies,whichinvolveextensiveuseofforeigncapitalandsophisticatedtechnologyinexportorientedmanufacturing,largescaleinfrastructureprojectsandsubstantialamountoflaborforce.Hence,TheGovernmentistargeting45economiczonesinordertoattractprivatesectorparticipationinthedevelopmentofthesezones.ThesehavetobedevelopedasPublicPrivatePartnerships(PPPs)wheretheBOIwillprovidethelandandtheinvestorshavetobuildinfrastructurefacilities.keepingthatinmind,governmentshoulddirectFDImoreeffectivelyinthesesectorsinordertogainsubstantialbenefitsfrombothregionallyandglobally.PoliciesinitiatedoverpastyearsIfweconcernedaboutFDIinSriLankaPriortoeconomicliberalization,SriLankahasfollowedinwardlookingeconomicpolicies,whichhadlimitationsforforeigninvestorsandfreeflowofFDI.Althoughtherewerelimitationsduringtheperiodof1950-1977,somemeasureshadbeentakentoattract.In1977politicalentitieshaveputanefforttomakeaninvestmentfriendlyeconomicenvironmentwiththemarketorientedeconomicpolicies.Hence,InvestmenthasbeenactivelyengagedwithSriLankaandnowthereareover1,000companiesfrom55countriesoperatinginSriLanka.

In2015,withthearrivalofthenewgovernment,theyhaveidentifiedthatSriLankaneedshighlevelsofFDItomeetitsgrowthtargets.Therefore,severalinitiativeshavebeentakenbythenewgovernmenttopromoteandfacilitatesustainableinvestmentsandalsoseveralchangesanddevelopmenthavedoneinthoselawsandregulationsduring2016/2017.TheBoardofInvestmentLaw(BOILaw)TheBoardofInvestment(BOI)LawNo.4of1978anditsamendmentsistheprincipallawapplicabletoforeigninvestmentsinSriLanka.BOIisstructuredtofunctionastheCentralFacilitationpointforinvestorsandempoweredtoenterintoagreementswithinvestors.In2016/17BOIgrantedinvestmentincentivesincludingtaxholidays,taxconcessions,andgrantedexemptionsfromcustomsOrdinance&exchangecontrollawsforqualifiedinvestments.In2017,withtheintroductionofnewInlandRevenueAct,Insteadofprovidingtraditionaltaxholidaysforinvestments,SriLankahasmovedtoanewincentiveregimewiththeintroductionofthenewInlandRevenueAct.Accordingly,investorswillbegrantedAcceleratedDepreciationAllowance(ADA)andTaxCredits(TC)basedontheinvestmentsmadeondepreciableassets.ExchangeControlLawsApplicableforforeignInvestmentsTheexchangeControlActhasbeenrepealedandanewforeignexchangeActNo.12of2017hasbeenintroducedinJuly2017andgrantedpermissionfortheissueandtransferofsharesinacompanyupto100%oftheissuedcapitalofsuchcompany,toapprovedcountryfunds,approvedregionalfunds,corporatebodiesincorporatedoutsideSriLankaandindividualsresidentoutsideSriLankasubjecttotheexclusions,limitationsandconditions.Land(RestrictionsonAlienation).Act,No.38of2014anditsamendmentsUndertheLand(RestrictionofAlienation)ActNo.38of2014,foreignersandforeigncompanieswithforeignshareholdingover49%areprohibitedtopurchaselandonoutrightbasis.Itintroducedaleasearrangementwithanupfrontleasetaxof15%,whichwasrelaxedsubsequentlyundertheLand(RestrictionsonAlienation)AmendmentAct,No.3of2017.InvestmentProtectionTheArticle157oftheisland'sconstitutionguaranteesthesafetyofinvestmentprotectiontreatiesandagreementsapprovedbyparliamentbyatwothirdsmajority.SriLankahassignedbilateralInvestmentProtectionAgreements(IPA)with28countries.SriLankaalsohasbilateralDoubleTaxAvoidanceAgreements(DTAA)with42countries.

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Otherthanthat,governmenthasinitiatedpoliciesandpoliticalstrategiestoboostFDIinSriLankabyimprovingtheinvestmentclimate(DoingBusinessRanking,Countrybenchmarkingstudies,policyrecommendations),Accelerationofinvestmentapprovalprocess,Improvementstoinvestmentfacilitation,Developmentofnewzonesandupgradingofexistingzones.Uptonow,SriLankahassixfreetradezones,alsocalledexportprocessingorinvestmentpromotionzoneslocatedinKatunayake,Biyagama,Koggala,Pallekelle,MirigamaandMalwatte.Thereareover155foreignexportprocessingenterprisesoperatinginthesixzones.Anotherindustrialzone,fundedbytheOverseasEconomicCooperationFundofJapan,atSeethavaka,inAvissawela.SrilankafacesseveralchallengestoattractFDIintothecountry,hencegovernmentshouldmakenecessarystrategiesandpoliciestoincreaseFDIandalsotodirectFDIinkeyareasinordertomakeSriLankamoresustainable.

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