BOI Chairman Confirms Minimum Investment Threshold Of US$ 3 Million
By Faraz Shauketaly
In an interview given to The Sunday Leader, BOI Chief, Jayampathi Bandaranayake, confirmed that Sri Lanka was looking at a minimum entry level of US$ 3 million for investors to qualify for various incentives and concessions. The BOI Chief however, denied the figure quoted by us last week, that Foreign Direct Investment (FDI) had dropped to US$ 310 million in the first full year after the war threat was removed. The figure quoted by The Sunday Leader was the level of FDI that was realised during last year.
Excerpts of the interview.
Q1: Is it true that there is a suggestion to increase the entry level for projects to US$ 3 million to qualify for concessions?
A1: Yes, it is true that higher thresholds will prevail for investments under the Board of Investment (BOI) regulations which will confer certain concessions. These are to be announced in due course. The principles for investments to the country were spelled out in the national budget which has now been adopted.
The direction is that the general level of taxation has been reduced and certain sectors are provided tax free status as set out in the budget proposals. These will therefore enable potential investors, be they from the Small and Medium sector or any other, to invest without going through a BOI application process. These concessions are available under the Inland Revenue Law itself.
The BOI will be harmonising its concessions to fall in line with those of the Inland Revenue Law and this process is on and is expected to be complete soon.
Q2: Does the BOI have a set of regulations as of now? Investors are told to wait for after the Budget, so are these regulations in place now?
A2: The BOI has sets of regulations which are current but the ones that spell out tax concessions are to be replaced as explained earlier.
Q3: Does the BOI not feel that by increasing the entry level for concessions to be obtained by investors to US$ 3 million, SMEs will be put off when considering Sri Lanka as an FDI destination?
Do other regional countries that compete with Sri Lanka for FDI have such minimum thresholds?
A3: Your question goes to the very purpose of the BOI. The primary purpose of the BOI is to ensure that levels of investment are attracted into the country to achieve its desired levels of economic growth. Given the level and extent of desired investments these will be achieved through larger investments and hence the accent on higher thresholds for investments.
As explained earlier, the general taxation levels have been lowered to make investments attractive under the general laws which are competitive with other destinations attracting investments.
In view of the lowering of the general level of taxes the SME sector is being encouraged and the many sectors in which the domestic SME sector invests is in any case free of taxes and have been encouraged in other ways as well.
We do not need to attract investments on the basis of tax concessions alone. Investors can assess the opportunity for successful business growth and make investments and there is an unprecedented level of interest. They do not seek tax concessions alone but look for speedier decision making, streamlined processes of approval, faster transaction, clarity on policies etc.
On your last point, yes, indeed other Asian countries with whom we compare do have minimum thresholds for FDI.
Q4: How many jobs have been created by BOI projects since inception?
A4: Over 450,000 jobs have been created by BOI enterprises as direct employment. I should add that these include some of the most technically skilled jobs in the country.
Q5: In dollar terms, how much has the BOI brought into the country (in terms of projects actually started rather than projected to start after approval)?
A5: The recorded cumulative value for FDI inflows into Sri Lanka is around US$ 6 billion since 1978 and half of this amount has been achieved after 2006.
Q6: In 1994/95 there was a big drop in FDI. Why would you say that was? Who was Chairman at the time?
A6: I do not have the answer to your question as to why there was a dip in FDIs in 1994.
The flow of investments to the country is not the role of one person or one entity and also depends on many factors such as socio economic stability both within the country and globally.
Also it should be made known that what gets recorded as FDIs is what gets actually invested and not the values of the investment agreements entered into. Once an agreement is signed there is a gestation period of around three years on an average and the investment flows in accordingly.
Q7: Was 2008 the highest in terms of FDI? What in your opinion drove home the FDI to such high levels especially when there was a war going on?
A7: Sri Lanka achieved FDI inflows of US$ 889 million in 2008. The high levels of FDI were also on account of re-investments by existing companies, notably in the telecommunications sector.
However in 2011, which will be a full year of policy operational and policy stability, FDI inflows should reach at realistically a minimum of around US$ 1 billion.
Q8: Are there plans to restructure the BOI into a so-called “Super BOI” encompassing other agencies including Tourism?
A8: The BOI is being operationally organised to deliver these results. The targeted thrust sectors have been proposed for the consideration of government and these will be covered in the new BOI regulations which will be announced.
There will also be a specialised unit focusing on high value investments such as those that are strategic in nature. I can only speak for the BOI which the BOI Board is mandated to deal with and I am hence not in a position to talk of other government agencies.
Right of Reply
January 21, 2011
Ms. Frederica Jansz
The Sunday Leader
Dear Ms Jansz
Letter to the Editor: “drastic BOI changes threaten economic progress”
I am writing on behalf of the BOI with regards to the article that appeared in the Sunday Leader of 16th January 2011.
As it does include some information on country investment policy that could potentially mislead the public, I would be grateful if you could publish the following clarifications for the benefit of your readership. I have responded to the main points in the article and these are also addressed in greater detail in the interview of the BOI’s Chairman, to be published in the Sunday Leader on 23rd January 2011.
1-Minimum US$ 3 million threshold for investment: In response to the article’s assertion that the future regime of incentives will deter investments by SMEs, the BOI wishes to bring to the notice of the public that smaller investors will be covered under the Inland Revenue Law. It is part of a process to harmonize the BOI concessions with those of the Inland Revenue Law.
2-Regional Countries will benefit more from FDI inflow: This point expressed in the article is highly debatable and not in any way quantifiable. It also does not take into account the many variables other than tax incentives, that investors evaluate when deciding to invest in a country.
They include factors such as political stability, strategic location, natural resources available, human resources, power and energy sources and other relevant variables. These considerations do not just apply to Sri Lanka but also to all countries seeking to attract investment.
3-Long approval delays stymie development: The BOI has always sought to fast track the approval of projects and is currently implementing reforms aimed at offering a better service, by setting up units of sector specialists in key areas. This is a continual process for the BOI. To fast track the approval of projects, the Government has also taken action to strengthen inter-agency co-ordination.
4-Government focuses on large projects: To a greater extent this is correct, since the BOI’s objective as an institution is to promote economic development through investment. This development in the form of foreign currency inflows, employment generation and transfer of technology and know-how can be best achieved by Sri Lanka by attracting large-scale projects. Investors will be able to set up SME investments under the normal laws.
Dilip S. Samarasinghe
Director (Media & Publicity)
Board of Investment of Sri Lanka