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Sri Lanka receives $1.42 billion as foreign direct investment in 2013

Islamic Finance has garnered an increased interest in the last few years and has the potential to develop the capital markets of Sri Lanka and assist in the development of infrastructure along with encouraging foreign investment in the island state, according to an economist in Sri Lanka.
In an interview with Arab News, Suresh Perera, tax and regulatory principal of the KPMG Sri Lanka, said Islamic Finance was first introduced to Sri Lanka as early as 1997. However, the landmark evolution was the amendment made to the banking act (No. 30) of 1988 in the year 2005 where it allowed both commercial banks and specialized banks to operate on a Shariah-compliant basis. Amana Bank is a full-fledged Islamic Finance Bank in Sri Lanka. Islamic Finance windows have been established in state banks such as Bank of Ceylon and in large private banks. Instruments such as mudaraba, murabaha, ijara, and diminishing musharaka are common in Sri Lanka.
Perera, who will be presenting a paper at the forthcoming KPMG Middle Eastern and South Asian Conference (MESA), being held in Dubai from Dec. 9-10, said Sri Lanka remains an attractive destination for foreign investors.
The MESA conference would attract many clients from across the MESA region and also key KPMG regional partners. The conference would provide valuable inputs in relation to structuring Middle Eastern investment, outbound investments and strategies, trade and customs, tax and regulatory developments in Saudi Arabia and other middles eastern countries, tax updates, and investment opportunities in South Asia, including Sri Lanka .
“Sri Lanka has a fascinating web of taxes and laws restricting foreigners acquiring land, but any foreign investment that would obtain the status of strategic development project (SDP) could enjoy sweeping tax benefits as well as exemptions from laws that restrict foreigners acquiring land to carry out the project.
All the projects that have received SDP status so far such as oil exploration projects carried out by Cairn, hotel projects by Shangri La, Sheraton, Hyatt and mixed development projects by TATA group, waterfront properties and Avic International, coal power plant, and UCLAN (UK based University) in the education sector have received various tax exemptions.”
He said preferred areas of investment include education, tourism, infrastructure, utilities, knowledge and Agriculture.
“It must be pointed out that even under the normal tax regime field of agriculture enjoys special tax incentives. Projects entailing cultivation of vegetables and fruits for export market using modern technology could be an area of investment for the Middle Eastern market.”
Sri Lanka earned $1.42 billion as foreign direct investment (FDI) in 2013 while in 2012 it earned $1.38 billion as FDI. The highest FDI source in 2013 was 24 percent from Chinese investors. The FDI target for 2014 is $ 2.5 billion.
Sri Lanka recorded an exhilarating gross domestic product (GDP) growth rate of 8 percent in the years 2009-2010 and 2010-2011, exhibiting the powers of its new found freedom, soon after the end of the three-decade long cold war, which ended in 2009.
Sri Lanka’s GDP growth rate in 2013 was 7.3 percent and 6.3 percent in 2012. Sri Lanka’s aim is to achieve economic growth of 8 percent in the year 2014 and this rate of growth is the highest in Asia.
“One of Sri Lanka’s main advantages is the high quality of workers. The literacy rate in Sri Lanka is 92 percent, the highest literacy rate in south Asia and overall one of the highest in Asia,” he said, adding that the island state is one of the safest countries in the world for investment due to a number of mechanisms in place to protect investors.
Sri Lanka has signed bilateral investment protection agreements (IPA) with 28 countries. Sri Lanka also has bilateral double tax avoidance agreements (DTA) with over 40 countries. Out of the Gulf countries, Sri Lanka has entered into DTA with Kuwait, Oman and the UAE, and a limited DTA covering air transport with Saudi Arabia. Sri Lanka is party to many free trade agreements such APTA, SAPTA, ISFTA and IPFTA.

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