US envoy warns China-backed Colombo Port project may create safe haven for money launderers
US Ambassador to Sri Lanka and Maldives, Alaina Teplitz on Saturday warned Sri Lanka of unintended consequences of 'nefarious actors' who may try to misuse a China-backed Colombo Port City's easy business rules as a permissive money laundering haven amid concerns of tax leaks.
Sri Lanka has unveiled draft legislation for a Colombo Port
City Commission which allows for sweeping tax breaks, tax-free salaries and to
be an offshore financial centre, reported economynext.
"Any legislation relating to the port city has to be
considered very carefully for its economic impact," Teplitz told reporters
in Colombo in an online discussion.
"And of course among those un-intended consequences
could be creating a haven for money launderers and other sorts of nefarious
actors to take advantage of what was perceived as a permissive business
environment for activities that would actually be illegal."
The agency running the Port City would have extensive powers
to exempt businesses from taxes of up to 40 years, though it is not a tax haven
in the traditional sense, reported economynext.
Sri Lanka's tax revenues have plunged in 2020, raising
concerns over debt and the fiscal path, credit downgrades and the ability of
the government to provide vital public services to the people, while managing
loss-making state enterprises.
"I do recognize that the government of Sri Lanka wants
to take advantage of the investment that has already been made in creating the
Port City foundation, but the legislation really needs to be reflected to
address these challenges and to be careful of what it might be to open doors to
bad practice and unfair competition for the rest of the country," said
Teplitz.
Teplitz said an idea by US Treasury Secretary Janet Yellen
to have a global single corporate tax was just a proposal with no immediate
impact but Sri Lanka should think about tax concessions in its own interests.
Sri Lanka is under the worst import controls since the 1970s
using the 1969 law, though exchange controls are less draconian.
Sri Lanka's economy was progressively closed with an import
control law being enacted in 1969 as money printing pressured the rupee, which
worsened after the break-up of the Bretton Woods in 1971, as then-Federal
Reserve Chief Arthur Burns printed money to target an output gap, forcing
dollar to be floated.
Sri Lanka's attempts at creating numbered accounts as part
of creating Non-resident foreign currency accounts, after re-opening the
economy in 1978 was also resisted by Western nations.
Citizens are also allowed to hold up to 15,000 US dollars as
well as unlimited amounts in dollar accounts outside to protect their savings from
monetary expropriation, in relaxation of legal tender laws.
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