Sri Lanka parliament backs tax exemptions for port deal with Chinese

Parliament of Sri Lanka

Sri Lanka’s parliament approved on Friday a raft of tax concessions for a Chinese-led joint venture which will handle the southern port of Hambantota under a $1.1 billion deal that has sparked public anger and concerns in India and elsewhere.

The deal, signed in July, leases the port to a Chinese firm for 99 years and the tax concessions include an income tax holiday of up to 32 years. The port is near the main shipping route from Asia to Europe and likely to play a key role in China’s “Belt and Road” initiative.

The joint venture comprises the China Merchants Port Holdings, which holds a 70 percent stake, and the Sri Lanka Ports Authority (SLPA), which has the remaining 30 percent.

“Today the parliament approved two motions… to grant certain tax incentives to those two companies operating the Hambantota port,” Ports Minister Mahinda Samarasinghe told Reuters.

In the 225-member parliament 72 lawmakers backed the tax concessions and seven voted against. Many opposition deputies boycotted the vote.

The government pressed ahead with the vote despite a suggestion from opposition lawmaker Dinesh Gunawardena, who suggested the measures should require a two-thirds majority, or more than 150 votes, given the strategic nature of the issue.

Government and diplomatic sources have told Reuters that the United States, India and Japan had raised concerns that China might use the port as a naval base and could be a threat to security and stability in the Indian Ocean.

An initial plan to give the Chinese firm an 80 percent stake triggered protests by trade unions and opposition groups, forcing the government to make some revisions that limit China’s role to running commercial operations while retaining for Colombo oversight for broader security issues.

The government will hand over the port, built with Chinese loans at a cost of $1.5 billion, to the joint venture on Saturday and will receive $300 million, or around 30 percent of the deal, Samarasinghe said.

He also said the SLPA and the Chinese firm had signed the lease agreement just before parliament’s approval of the tax exemptions.

There has also been widespread public anger over plans for a 99-year lease of 15,000 acres (23 sq miles) to develop an industrial zone next to the port. This land lease is under negotiation.

The parliamentary vote came a day after Sri Lanka’s Supreme Court set a date for Jan. 11 to rule on three petitions against the leasing of land around the port to China.

Sri Lanka has said the Chinese firm will invest an additional $600 million to make Hambantota port operational and $1.12 billion from the deal will be used for debt repayment.

India is in advanced talks with Sri Lanka to operate an airport near Hambantota port.