Category: Daily Financial Times

The Gampaha Lawyers’ Association has urged President Anura Kumara Dissanayake to reconsider the proposed two-year extension of the retirement age for Supreme Court and Court of Appeal judges, warning it could erode public confidence in judicial independence and delay the career progression of judicial officers.

In a letter to the President, the association called for broad consultation with the legal profession before any constitutional changes, the immediate filling of existing Superior Court vacancies through the constitutional process, and a reaffirmation of the Government’s commitment to judicial independence, the separation of powers and the rule of law. It argued that any change to judges’ tenure should be assessed not only for its legality but also for its impact on public confidence in the Judiciary.

The Consulate General of Sri Lanka in Milan, in collaboration with the Italian Foreign Trade Association and Club Asia, successfully organised a Business Forum titled ‘Discover Sri Lanka: Gateway to Trade and Investment,’ on 9 July in Milan.

It was conducted in a hybrid format, enabling both physical and virtual participation.

The primary objective of the Forum was to promote Sri Lanka Expo 2027, scheduled to be held in Colombo from 14-17 January 2027, while presenting the trade, investment, and business opportunities available in Sri Lanka to the Italian business community.

The Forum commenced with opening remarks by Sri Lanka Ambassador to Italy Satya Rodrigo. Industry and Entrepreneurship Development Deputy Minister Chathuranga Abeysinghe addressed the Forum virtually from Colombo, reaffirming the Government’s strong commitment to fostering international trade and investment while extending an official invitation to the Italian business community to participate in Sri Lanka Expo 2027.

He further highlighted the recent policy reforms introduced by the Government to facilitate foreign investment, improve the ease of doing business, and create a more transparent, predictable, and investor-friendly business environment in Sri Lanka. The Deputy Minister also reiterated the Government’s firm political commitment to supporting foreign investors by ensuring policy consistency, enhancing investor confidence, and fostering long-term partnerships.

Following the Deputy Minister’s comprehensive remarks, Sri Lanka Export Development Board (EDB) Chairman presented the objectives of Sri Lanka Expo 2027 and outlined Sri Lanka’s export capabilities across a range of sectors. The Board of Investment of Sri Lanka (BOI) also made a comprehensive presentation on the country’s investment climate, strategic advantages, and incentives available to foreign investors.

An important highlight of the Forum was the presentation by Calzedonia Group (now rebranded as Oniverse) Director of Operations Riccardo Romani, who shared the company’s successful experience of investing and operating in Sri Lanka for over 25 years.

He emphasised Sri Lanka’s strategic importance to Calzedonia as the manufacturing hub for some of the Group’s most sophisticated and value-added production lines. He also commended the strong institutional support extended by the Government of Sri Lanka and its agencies, which has contributed to the company’s continued expansion and operational success in the country.

Romani further praised the Sri Lankan workforce for its dedication, adaptability, and strong learning capacity, noting that these qualities have been instrumental in maintaining the high standards of quality and innovation required by the Group’s global operations. His practical insights and positive assessment of Sri Lanka’s investment climate, manufacturing capabilities, and human capital generated considerable interest among the participants, providing a compelling endorsement of Sri Lanka’s attractiveness as a destination for long-term foreign investment.

Italian Foreign Trade Association Secretary General David Doninotti, Club Asia Chairman Marco Bettin, and the CNA World Honorary President Indra Perera were among the distinguished speakers from the Italian side. Consul General of Sri Lanka in Milan Dulmith Waruna delivered the vote of thanks on behalf of the Consulate General, expressing appreciation to all participants and distinguished speakers who joined the Forum both physically and virtually. The Forum was moderated by Minister Counsellor Tharaka Botheju of the Consulate General.

The overall response from the participants was highly encouraging. The Italian business representatives expressed strong appreciation for the comprehensive presentations and welcomed the opportunity to gain first-hand information directly from the relevant Sri Lankan authorities. In particular, Sri Lanka Expo 2027 received positive recognition, with several participants describing it as an important platform to identify reliable business partners, explore sourcing opportunities, and establish commercial relationships with Sri Lankan companies. Many participants expressed interest in receiving further information on the Expo and indicated their intention to explore participation either individually or through business associations.

The Forum also strengthened the existing collaboration between the Consulate General and its institutional partners, namely Club Asia, while creating new opportunities to engage the Italian private sector in Sri Lanka’s trade promotion initiatives.

The event concluded with a networking session, allowing Italian business representatives to interact with the Consulate General officials, exchange contacts, and discuss potential avenues for future cooperation. Overall, the Forum successfully achieved its objectives of promoting Sri Lanka Expo 2027, enhancing awareness of Sri Lanka’s trade and investment potential and generating encouraging interest among the Italian business community in strengthening economic engagement with Sri Lanka.

3Rive Technologies, the Artificial Intelligence (AI)-first legal technology service provider, has announced it has become an official partner in Anthropic’s Claude Partner Network, the global ecosystem of firms trained and vetted to deploy Claude, Anthropic’s family of AI models, inside client organisations.

Headquartered in Australia, with its engineering and AI development centre in Sri Lanka, a regional office in Dubai and a UK presence to follow, 3Rive serves law firms and legal businesses across the UK and Australian markets. The firm believes it is among the first legal-technology pure-play service providers globally to join the network.

3Rive Technologies Founder and CEO Chuck Silva said: ‘We set out to build something different: a legal technology firm that is AI-first from the ground up, not one retrofitting AI onto an old delivery model. Our ambition is to be the best legal technology service provider in the APAC, and in time, the biggest. This partnership is the foundation. Just as importantly, we want to change how technology itself gets delivered, and to challenge every engineer, every technologist in our industry to become AI-first in how they think and build. The firms and the people who make that shift now will define the next decade of legal services.’

3Rive is the firm behind Cognitive Outsourcing, a UK-trademarked gain-share managed services model in which 3Rive takes operational ownership of a client’s back-office function and funds its AI-driven redesign across a multi-year term, with the client retaining the AI assets. The same AI-first principle runs through 3Rive’s own operations: Claude is embedded across the firm’s engineering, delivery, marketing, and back-office functions. The firm builds the way it advises its clients to build.

Beyond client delivery, 3Rive intends to play an active role in growing the Claude builder ecosystem in Sri Lanka, home to its engineering and AI development centre. The firm will host a series of public Claude sessions in Colombo in the coming months, including open workshops, live build demonstrations, and meetups, and is applying to Anthropic’s Claude Community Ambassadors program to help lead the local builder community.

‘If we want an AI-first generation of engineers, someone has to open the doors and show the work. We intend to be that firm, and we intend Sri Lanka to be on the map of serious AI engineering talent,’ Silva added.

As social beings, we all need to play different roles and take on various responsibilities throughout our lives. This becomes even more complicated because we often need to switch between these roles simultaneously. In simple terms, recall a situation in which you received a phone call from a family member while you were deeply engaged in an official or educational matter. Such simple examples remind us of the importance of developing emotional intelligence and related skills. Due to similar reasons, many people make considerable efforts to read books, watch videos, and engage with other content that promotes self-growth. In the scholarly world, we often encounter numerous books and publications on topics such as work-life balance and motivation that aim to support these needs.

Recently, a renowned public speaker and respected Guru at the University of Kelaniya, Tharindu Dananjaya Weerasinghe, published an insightful book titled, ‘Hundred Capsules of Motivation’, produced by Vidyalankara Printers and Publishers. In my view, this can shape our thinking and behaviour through its valuable perspectives and style of delivery.

What motivation can and cannot offer

By looking at the title of the book, one may judge this as another book about motivation. However, when I engaged with it, I felt that it guides us to understand and see motivation from different angles. Initially, the book reminds readers of the value of having a vision for one’s own life, rather than merely engaging in day-to-day matters in organisational or personal life. This vision helps us answer the often-emerging inner question, ‘Do I really need to do this?’. These preliminaries may help us begin something through the role of motivation. However, the author highlights the temporary nature of motivation. Accordingly, the book shows the critical role of discipline and focus in completing the journey, rather than merely depending on motivation. This reminds me of many stories of first-year undergraduates about their expectations regarding academic performance and how they actually perform during the four years. It also recalls the experience shared by a gym owner about how he often sees a large number of new members at the beginning of the year and how these new members gradually give up.

Dealing with the mindset

As I believe, we all continuously battle with our own minds as we navigate toward our desired destinations. For instance, think about a recent occasion when you picked up your mobile phone to check a notification while engaged in an important task and ended up scrolling down for fifteen minutes. Such experiences remind us of the importance of self-awareness and the need to take control of our own minds.

In my view, this book provides valuable insights and practical tools to help readers understand and manage their minds while developing a growth mindset. In particular, the chapter on ‘Choosing Your Battles Wisely’ forced me to reflect on my everyday activities and how I do them. Through this reflection, I found multiple ways in which I burn my energy by responding to tasks that do not deserve my attention. Similarly, the book provides readers with valuable lessons on emotional self-regulation, developing inner grit, and the magical role of habits in our lives. Also, the book shows how small, invisible improvements can produce huge differences in life, rather than waiting for big changes within a short period of time. Accordingly, these insights provide valuable lessons to deal with our own minds and navigate toward our desired destinations.

Clarifying often-misunderstood beliefs

In my opinion, another unique feature of this book is that it allows the reader to revisit certain beliefs in day-to-day life. For instance, almost all of us expect growth in our personal or professional lives. In the case of organisations, this may be a promotion, salary increase, or better working conditions. At the same time, many want to avoid responsibility. When it comes to failures, such individuals often provide excuses and make various efforts to escape from responsibility. However, modern organisations need people who can take responsibility, not members who provide excuses. In the author’s own words, ‘Excuses make today easier, but tomorrow harder’. So, do you still want to run away from responsibility but expect growth in your personal or organisational life?

We often see various guidance on how to manage time effectively. Although it is important, this book explains the value of managing our energy effectively. Understanding our priorities and devoting our mental energy strategically can produce better results. For instance, what if we devote our fresh attention to checking notifications on social media apps and attending to tasks that require strategic thinking later? Hence, it advises us to protect our energy in order to improve performance. Accordingly, the author emphasises to readers the value of being self-aware of mental energy and priorities and allocating them strategically throughout the day. In this way, time management and energy management could be integrated together.

Prescription: One capsule per day before bed

Through a hundred concise, one-page chapters, the book provides valuable lessons on various aspects of our lives. Based on my experience with the book, I recommend future readers to go through one lesson at a time before going to sleep and reflect on the message until they fully digest its meaning. In this way, these chapters may work as medicine to bring change into our lives within 100 days.

‘Every city has two histories. One is written in archives. The other is written by those who arrive there.’ This idea set the tone for an engaging evening of stories, history, and conversation as the High Commission of Sri Lanka in New Delhi hosted a discussion on Colombo: Port of Call by journalist and author Ajay Kamalakaran on 15 July 2026 at the Residence of the High Commissioner, in collaboration with Chapters by Shibani.

Bringing together members of the diplomatic corps, academics, authors, journalists, business leaders, students, and friends of Sri Lanka, the event celebrated Colombo not merely as a city or a port, but as a meeting place of cultures, ideas, and civilisations whose story has been shaped by generations of travellers, writers, reformers, artists, and statesmen.

Welcoming the gathering, the High Commissioner Mahishini Colonne, observed that, for more than six decades, the Residence of the High Commissioner in New Delhi had served as Sri Lanka’s home in India and as a place where dialogue, friendship, and cultural exchange flourish. She noted that the evening continued this tradition by creating a space for conversation around a city that has welcomed the world for centuries.

Moderated by Shibani Sethi, the discussion explored the book’s unique approach of telling Colombo’s story through the observations of remarkable visitors, including Mahatma Gandhi, Anton Chekhov, Urabi Pasha, Mary Carpenter, and Prince Esper Ukhtomsky. Their diaries, memoirs, and travel accounts reveal Colombo’s emergence as one of the Indian Ocean’s great ports of call during the age of steamship travel and offer a fascinating perspective on the city’s evolution as a crossroads of cultures, commerce, and ideas.

Adding a personal dimension to the evening, guests were invited to share a favourite memory of Colombo or Sri Lanka before the event. Their reflections-ranging from childhood memories and literary discoveries to enduring friendships and experiences of Sri Lankan hospitality-were displayed alongside a specially curated timeline tracing Colombo’s journey from an ancient harbour to the vibrant city of today. Together, they illustrated that Colombo’s story continues to be written by everyone who experiences it.

The event reflected the High Commission’s continued commitment to promoting Sri Lanka’s rich cultural and literary heritage while strengthening people-to-people ties and fostering deeper understanding between Sri Lanka and India through dialogue, literature, and shared histories.

As guests departed with signed copies of the book and new stories to reflect upon, the evening reaffirmed literature’s unique ability to build bridges across borders and generations, bringing Colombo, for one evening, to the heart of New Delhi.

The 2027 deadline and the structural reserve gap

Sri Lanka is rapidly approaching a critical financial juncture. Following the 2022 default, bilateral creditors and International Sovereign Bond (ISB) holders granted temporary debt service relief, providing a grace period that effectively postpones major principal amortisation. However, this window closes in 2027-2028. Under the debt restructuring agreements and the IMF’s Debt Sustainability Framework (DSF), Sri Lanka’s external public debt servicing-covering official bilateral loans, restructured commercial bonds, and multilateral obligations-will jump to approximately $4.5 billion to $5 billion annually, anchored to an IMF target capping annual foreign currency debt service at 4.5% of GDP.

Against this upcoming obligation stands a structural buffer gap:

n The reality of current reserves: While Gross Official Reserves (GOR) have recovered to roughly $6.5 to 6.8 billion, a significant portion remains locked or conditionally restricted-most notably the $1.4 billion Peoples Bank of China (PBOC) swap, which carries strict usability caveats linked to import coverage. Net usable foreign exchange buffers hover closer to $5.0 to 5.3 billion.

n The reserve adequacy deficit: To safely absorb external shocks, maintain international market confidence, and cover 3 to 4 months of essential national imports (which require roughly $1.6 billion to $1.8 billion monthly), Sri Lanka requires a net reserve cushion of at least $10 billion to $12 billion.

n The structural gap: This leaves an active reserve deficit of $4.5 billion to $5.5 billion that must be built before full-scale commercial repayments resume.

To bridge this gap, the Central Bank of Sri Lanka (CBSL) is forced to act as an aggressive net buyer of foreign exchange from domestic banking channels. However, when the Central Bank consistently mops up dollars from commercial banks to build state reserves, it extracts foreign currency liquidity from the domestic market. Unmanaged, this structural squeeze places continuous downward pressure on the Sri Lankan Rupee, creating a sharp tension between building reserves for debt repayment and preserving currency stability.

Managing exchange rate volatility to prevent social upheaval

Currency depreciation in an import-dependent economy acts as a direct tax on the public.

Sudden exchange rate slides quickly translate into higher pump prices for fuel, elevated electricity tariffs, and costlier food items.

In Sri Lanka’s fragile post-crisis socio-political landscape, severe currency swings are a major driver of domestic discontent. To keep political turmoil at bay while adhering to a flexible exchange rate regime, the government must avoid two policy extremes:

1. The trap of the Hard Peg: Depleting foreign reserves to artificially defend an unsustainable exchange rate-as seen prior to April 2022-is no longer an option.

2. Uncontrolled free-floating: Leaving the thin domestic market entirely to speculative forces risks sharp overshooting and panic buying.

The middle path: A transparent, rule-based intervention mechanism (such as a crawling band or strict volatility-smoothing interventions) allows the rupee to reflect economic fundamentals without allowing short-term market panic to trigger inflationary spirals.

Plug the drain: Closing trade mis-pricing and forex leakages

A genuinely liberalised forex policy cannot survive if the financial system contains structural trapdoors. Over the past decade, trade mis-invoicing-particularly import undervaluation-has drained billions of dollars from the formal financial ecosystem.

A. The advance payment loophole

High border tariffs (Customs duties stacked with CESS, PAL, and VAT) created strong incentives for importers to under-declare shipment values at ports. To settle the unpaid offshore balance to foreign suppliers, bad actors exploited Telegraphic Transfer (TT) advance payments-remitting dollars abroad under the guise of future cargo that was either mis-priced or never arrived.

B. Modernising the 2017 framework

The passage of the Foreign Exchange Act No. 12 of 2017 intended to streamline capital flows, but its decriminalisation of exchange offences and reliance on procedural banking checks weakened enforcement. Maintaining open forex flows requires smart enforcement rather than blunt bans:

nIntegrated data platforms: Automatically linking Central Bank TT remittance data with Sri Lanka Customs import manifests via Unique Identification Numbers (UINs) and TINs closes the valuation gap before funds leave the country.

nTargeted legal deterrence: Re-establishing strict legal and financial penalties for deliberate trade fraud ensures that liberalised rules apply only to legitimate commerce.

Tariff rationalisation: Lowering border taxes to protect consumers

An often-overlooked tool for currency and price stability is tariff reform. When the government levies exorbitant border taxes to generate quick revenue, it inadvertently drives up consumer prices and incentivises smuggling. A rational policy mix requires:

n Consolidating border taxes: Gradually eliminating multi-layered levies (such as CESS and PAL) in favour of a simplified, two-tier customs structure.

n Shifting to domestic consumption taxes: Expanding the broad-based Value- Added Tax (VAT) network on domestic sales ensures state revenue is collected at the point of final consumption rather than through distortionary port tariffs.

Lowering border tariffs reduces the profit margin of invoice tampering, naturally directing forex transactions back into official banking channels.

The path ahead

Navigating the transition to 2027 requires a clear-eyed synthesis of open-market economics and vigilant oversight.

A liberalised foreign exchange regime does not mean an unmonitored one. By automating trade verification, shifting revenue generation to broad domestic taxes, and employing rule-based exchange rate management, Sri Lanka can build the foreign reserves needed for 2027 while keeping domestic living costs stable and social peace intact.

(The author is the Principal Consultant and CEO of KiWi Strategy Consultants, based in Nugegoda, Sri Lanka. A Chartered Engineer with a diverse professional portfolio spanning senior corporate leadership, investment management, and strategic consulting, he holds a B.Sc. in Mechanical Engineering from the University of Peradeniya and an MBA from the University of Colombo. His extensive executive career includes tenures as the CEO of Dankotuwa Porcelain PLC and General Manager at ACME Printing and Packaging, alongside active, board-level involvement with the Marga Institute)

S and P Global Ratings has affirmed Sri Lanka’s long- and short-term foreign and local currency sovereign credit ratings at ‘CCC+/C’ with a stable outlook, citing expectations that economic growth and fiscal consolidation will continue despite mounting external risks.

The ratings agency said the stable outlook reflects its expectation that conditions supporting economic growth and fiscal repair will persist over the next six to 12 months, even as growth moderates and the current account returns to deficit.

However, it cautioned that risks to external demand, inflation, and financing conditions remain elevated, limiting the scope for a near-term improvement in Sri Lanka’s sovereign credit profile.

S and P also revised Sri Lanka’s transfer and convertibility assessment to ‘B-‘ from ‘CCC+,’ while maintaining that the country’s creditworthiness remains vulnerable but is no longer facing an immediate funding or payment crisis. It said continued official financing, together with the Government’s reform agenda, should support fiscal and external improvements.

The agency expects Sri Lanka’s economy to expand by 3.8% in 2026, slowing from 5.1% growth recorded in the first quarter, before recovering to 4.2% in 2027 as energy supply disruptions ease. It said higher fuel and input costs linked to the Middle East conflict could weigh on economic activity over the coming quarters, although Government measures to secure fuel and fertiliser supplies have helped contain the impact.

S and P said Sri Lanka remains more exposed than many regional peers to prolonged disruptions in global energy markets because of its dependence on imported fuel and fertiliser, limited storage capacity, and still-fragile external buffers following the 2022 economic crisis. It also warned that weaker tourism earnings and remittance inflows could add pressure if instability in the Middle East persists.

On the fiscal front, the agency said revenue performance has remained strong following the lifting of vehicle import restrictions and tax measures introduced under the International Monetary Fund (IMF)-supported reform program. It expects higher spending on post-disaster reconstruction and energy-related subsidies to widen the fiscal deficit to 5% of GDP in 2026 before narrowing towards 4% by 2029. Net general Government debt is projected at about 92% of GDP this year, declining to around 83% by 2029.

S and P said it expects the Government to continue implementing structural reforms under the IMF Extended Fund Facility (EFF) program, including revenue-based fiscal consolidation, cost-reflective utility pricing, and improvements to public financial management. It noted that the administration has maintained a strong commitment to the reform program despite some implementation delays.

The agency forecasts Sri Lanka’s current account will return to a deficit of 1.7% of GDP in 2026 as imports rise, although inflows from the IMF and other multilateral lenders are expected to partly offset the deterioration. It also noted that gross official reserves declined to $ 6.45 billion in June from $ 6.88 billion in May, while tourist arrivals fell nearly 10% in June and growth in remittances slowed.

S and P said it could raise Sri Lanka’s sovereign ratings if sustained economic growth leads to further improvements in fiscal and external metrics, strengthening the Government’s capacity to manage its debt obligations. Conversely, it said renewed funding or liquidity pressures arising from weaker fiscal or external performance could result in a downgrade.

President Anura Kumara Dissanayake yesterday met the Sri Lanka Cricket (SLC) Transformation Committee to discuss challenges facing the development of cricket and the Government’s role in supporting the sport’s continued progress.

The meeting, held at the Presidential Secretariat, focused on issues affecting the development of cricket in Sri Lanka and measures to strengthen the game’s future, the President’s Office said.

The President also considered the support and contribution that could be provided by the Government towards the continued progress and advancement of cricket in the country.

Youth Affairs and Sports Minister Sunil Kumara Gamage, Chief of Staff to the President Prabath Chandrakeerthi, Sri Lanka Cricket Transformation Committee Chairman Eran Wickramaratne, and committee members Roshan Mahanama, Avanthi Colombage, Upul Kumarapperuma, Thushira Radella, Sidath Wettimuny and Dinal Philip also participated in the meeting.

Australia’s Special Envoy for Indian Ocean Affairs Tim Watts MP arrived in Sri Lanka yesterday as part of Australia’s ongoing engagement across the Indian Ocean region.

As Special Envoy for Indian Ocean Affairs, Watts works with regional partners to strengthen economic, diplomatic and development cooperation, support regional stability and build a more connected, prosperous and resilient Indian Ocean region.

During his visit to Sri Lanka, he will engage with Government representatives, political and business leaders, development partners and the Colombo arts community to discuss areas of shared interest and opportunities for continued collaboration, including efforts to strengthen resilience and preparedness in the face of shared regional challenges.

Sri Lanka is an important partner and neighbour for Australia in the Indian Ocean. Watts’ visit reflects Australia’s commitment to deepening partnerships across the region and strengthening the people-to-people, economic and institutional links that underpin a peaceful and prosperous Indian Ocean.

Watts is a former Assistant Foreign Minister and previously visited Sri Lanka in October 2023 to represent Australia at the 23rd meeting of the Indian Ocean Rim Association Council of Ministers meeting.

India’s recent amendment to its Double Taxation Avoidance Agreement (DTAA) with Sri Lanka is more than a routine treaty update. According to Deloitte Sri Lanka, it reflects a global shift towards stronger measures to prevent tax avoidance and raises an important question, should Sri Lanka now modernise its own tax treaty framework to keep pace with international developments?

The Protocol amending the India-Sri Lanka DTAA was signed on 16 December 2024 and entered into force on 19 June 2026 after both countries completed their domestic procedures. India notified the Protocol on 16 July 2026, and the amendments will apply in India for fiscal years beginning on or after 1 April 2027.

The Protocol introduces two key changes that make it harder for businesses to use tax treaties purely to reduce their tax liabilities.

First, it updates the treaty’s preamble to clarify that the Convention is intended to eliminate double taxation without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance, including through treaty-shopping arrangements.

Second, it introduces the Principal Purpose Test (PPT), an internationally recognised rule designed to prevent treaty abuse. In simple terms, if a business structure has been set up mainly to gain a tax advantage, the tax treaty benefits may be denied. Genuine commercial investments remain protected, while arrangements with little real business purpose may no longer qualify for treaty benefits.

These amendments implement the OECD/G20 Base Erosion and Profit Shifting (BEPS) Action 6 minimum standard on preventing treaty abuse. Many of India’s treaty partners adopted these standards through the Multilateral Instrument (MLI). Sri Lanka, however, has not joined the MLI, meaning that treaty modernisation can only occur through bilateral negotiations. From Deloitte’s perspective, these developments highlight the growing importance of ensuring tax treaties support genuine business activity while preventing their misuse.

International tax rules are evolving rapidly, and businesses should view these changes as an opportunity to strengthen governance and ensure their cross-border structures are built on genuine commercial purpose. Taking proactive steps today can help organisations manage future regulatory changes with greater confidence

The changes also highlight a broader issue for Sri Lanka. As Sri Lanka has not adopted the Multilateral Instrument (MLI), updating its tax treaties requires separate negotiations with each treaty partner. This can slow treaty modernisation and create inconsistencies across Sri Lanka’s treaty network until broader reforms are introduced.

Sri Lanka’s domestic rules alone may not always be enough to address treaty abuse because eligibility for treaty benefits is usually determined by the treaty itself. Where a treaty does not contain modern anti-abuse provisions, uncertainty can arise over whether domestic rules alone are enough to prevent treaty abuse. As international tax standards increasingly focus on whether a business has a genuine commercial purpose, rather than simply meeting legal requirements on paper, it becomes even more important for domestic laws and tax treaties to work together.

This approach applies across many types of cross-border transactions. For example, if a company is set up mainly to obtain tax treaty benefits rather than for genuine business reasons, the tax authorities may refuse to grant those treaty benefits. In such cases, the transaction itself is not disallowed, but the business may lose the tax benefit offered by the treaty and become subject to the normal domestic tax rules.

Similarly, the same substance-based approach may also be relevant to certain cross-border intra-group service arrangements. Under many of Sri Lanka’s tax treaties, payments for management and other intra-group services are generally not characterised as royalties and, with limited exceptions, may fall outside the scope of source-country withholding tax. Where treaty protection is relied upon, tax authorities are increasingly likely to examine whether the underlying arrangements reflect genuine commercial substance and business purpose, rather than merely the legal form of the transaction.

Deloitte Sri Lanka and Maldives Partner and Head of Tax Charmaine Tillekeratne said: ‘International tax rules are evolving rapidly, and businesses should view these changes as an opportunity to strengthen governance and ensure their cross-border structures are built on genuine commercial purpose. Taking proactive steps today can help organisations manage future regulatory changes with greater confidence.’

Deloitte encourages businesses operating between India and Sri Lanka to look beyond the legal form of their companies and focus on building transparent, well-governed investment structures. Businesses that rely on treaty benefits should review their arrangements to ensure they are supported by genuine commercial purpose and a clear business rationale

Whether the transaction involves holding structures, financing arrangements, licensing, intra-group services, or indirect transfers, the common question increasingly being asked by tax authorities is not simply whether the legal requirements have been met, but whether the arrangement is supported by genuine commercial purpose and economic substance.

Deloitte encourages businesses operating between India and Sri Lanka to look beyond the legal form of their companies and focus on building transparent, well-governed investment structures. Businesses that rely on treaty benefits should review their arrangements to ensure they are supported by genuine commercial purpose and a clear business rationale.

Deloitte believes these developments provide an opportunity for Sri Lanka to modernise its tax treaty network and align it with evolving international standards. A modern treaty framework can help protect the country’s tax base while supporting sustainable cross-border investment. Deloitte remains committed to helping organisations navigate these changes and respond confidently to an evolving global tax landscape.