Is It Time for Sri Lanka to Build Its Own Tax Haven?
Economic Affairs Correspondent
As Millionaires Flee Singapore and Europe, Colombo Risks Missing the Biggest Capital Migration of the Decade
By any rational economic metric, Sri Lanka is standing at the edge of one of the greatest missed opportunities in its post-independence history.
While policymakers in Colombo remain trapped in ritualistic debates over VAT percentages, PAYE brackets, and IMF compliance matrices, a silent global migration of wealth is underway—one that has already redrawn the financial map of Asia and the Middle East. Last year alone, 6,700 millionaires exited Singapore, and more than 12,000 high-net-worth individuals (HNWIs) relocated to Dubai, bringing with them an estimated USD 71 billion in capital. That figure does not include secondary inflows through family offices, trusts, or offshore investment vehicles.
Dubai did not acquire this wealth by accident. It engineered a deliberate, unapologetic strategy: zero personal income tax, zero capital gains tax, liberal residency regimes, and regulatory certainty for global capital. The result? JP Morgan Private Bank, Citigroup Wealth Management, UBS, and dozens of global family offices have established or expanded operations in Dubai—not to serve Emiratis, but to manage imported wealth.
The uncomfortable question Sri Lanka refuses to ask is this: Why not us?
The Global Exodus of Wealth: A Structural Shift, Not a Trend
The relocation of millionaires is no longer driven solely by lifestyle preferences. It is a structural response to aggressive taxation, regulatory overreach, and political instability in traditional wealth hubs.
- Singapore, once Asia’s gold standard for capital security, has tightened financial surveillance, increased property levies, and aligned itself more closely with Western regulatory frameworks.
- Europe faces punitive wealth taxes, inheritance taxes, and increasingly politicised fiscal policies.
- The United States remains attractive but suffers from regulatory complexity, unpredictable tax reform cycles, and geopolitical scrutiny of foreign wealth.
- Africa, Russia, and parts of East Asia face sanctions, currency controls, and capital flight pressures.
Dubai positioned itself as the neutral ground—non-aligned, business-first, and indifferent to political orthodoxy. The city-state did not moralise wealth; it commodified it.
Sri Lanka, by contrast, continues to treat wealth as a suspect class.
Port City Colombo: A Half-Built Idea Without Political Courage
Sri Lanka already possesses the physical infrastructure for a tax haven experiment: Port City Colombo. Marketed internationally as a “financial hub,” it remains functionally inert, constrained by indecision, bureaucratic paralysis, and IMF-induced anxiety.
Port City was never meant to be another export processing zone. It was envisioned as a special jurisdiction—with independent tax policy, flexible residency laws, and international arbitration frameworks. Instead, it has become a regulatory no-man’s-land: too autonomous for local politicians, too sovereign for IMF comfort, and too uncertain for global capital.
A tax haven is not merely about zero tax. It is about certainty, speed, and discretion. Sri Lanka offers none of the three.
The IMF Question: Who Really Controls Sri Lanka’s Tax Policy?
At the heart of this paralysis lies an uncomfortable truth: Sri Lanka no longer has full sovereignty over its fiscal policy.
Under the current IMF Extended Fund Facility, tax policy is not shaped in Parliament, debated by economists, or negotiated with citizens. It is benchmarked in Washington, D.C., monitored quarterly, and enforced through performance criteria designed primarily to reassure external creditors.
The irony is painful. Sri Lanka accepted IMF conditionality after decades of reckless borrowing by successive governments—Mahinda Rajapaksa, Chandrika Kumaratunga, and Ranil Wickremesinghe alike—yet the burden of “fiscal discipline” now falls disproportionately on ordinary wage earners, SMEs, and the shrinking middle class.
PAYE taxes were reintroduced with near-confiscatory rates. Indirect taxes rose. Consumption contracted. Meanwhile, capital remained mobile—and largely untaxed—because it simply left.
The IMF programme, valued at approximately USD 1.3 billion, has become a fiscal leash. Every quarter, Colombo waits for approval: you may raise this tax, but not lower that one; you may subsidise here, but not incentivise there.
The question policymakers refuse to confront is this: What is the opportunity cost of obedience?
Sri Lanka’s Forgotten Advantage: Being Early, Not Late
Sri Lanka was once a pioneer. It was the first country in South Asia to introduce tax-free export processing zones, attracting foreign manufacturers decades before regional competitors understood the model.
That entrepreneurial instinct has vanished.
Today, the global competition is no longer for factories—it is for people with capital. Countries that understand this reality design ecosystems for wealth migration:
- Long-term residency or golden visa programmes
- Tax neutrality for foreign-sourced income
- Family office regulations
- Lifestyle infrastructure: healthcare, education, security
- Predictable legal frameworks insulated from populist politics
Sri Lanka ticks more boxes than it realises: strategic location, low cost of living, English-speaking professionals, strong private healthcare, and an attractive climate. What it lacks is policy courage.
A Tax Haven Zone Is Not a Giveaway—It Is an Investment
Critics will argue that a tax haven benefits the rich and undermines equity. This argument is intellectually lazy and economically flawed.
A properly designed Tax Haven Zone (THZ)—limited geographically and legally—does not erode the domestic tax base. It expands the economy horizontally.
Consider the spillovers:
- Property development and construction
- Professional services (legal, accounting, compliance)
- Hospitality, retail, education, and healthcare
- Capital inflows into local equity and debt markets
- Foreign exchange stability without sovereign borrowing
Dubai did not tax millionaires—but it taxed their consumption, businesses, and employees. Sri Lanka could do the same.
Visa Regimes: The Low-Hanging Fruit
One of Sri Lanka’s most underutilised advantages is its potential for a low-friction residency regime.
Dubai, despite its success, is becoming expensive. Singapore is restrictive. Europe is bureaucratic. Many wealthy individuals are searching for a Plan B jurisdiction—a place to park capital, families, and futures.
Sri Lanka could offer:
- 10–20 year residency permits
- No minimum stay requirements
- Simple KYC processes
- No questions asked about foreign income
- Clear exit rights
The capital would follow.
Balancing the IMF Without Breaking the Programme
Contrary to popular belief, the IMF does not prohibit special tax zones. It monitors aggregate fiscal outcomes, not ideological purity.
Sri Lanka could:
- Ring-fence the tax haven zone legally
- Classify it as a foreign investment jurisdiction
- Ensure domestic taxes remain untouched
- Transparently disclose inflows as non-debt FX
The real obstacle is not IMF rules—it is political timidity.
The Cost of Inaction: A Shrinking Economy, A Taxed-Out Middle Class
Every year Sri Lanka delays, it loses relevance. Dubai, Abu Dhabi, Riyadh, and even emerging African hubs are competing aggressively for mobile wealth.
Meanwhile, Sri Lanka taxes its professionals into emigration, its entrepreneurs into informality, and its consumers into stagnation.
This is not fiscal prudence. It is economic self-harm.
Sovereignty Is Not Declared—It Is Exercised
Sri Lanka stands at a crossroads. It can continue to micromanage scarcity under IMF supervision, extracting more from less, taxing fewer people harder, and hoping compliance leads to growth.
Or it can reclaim strategic autonomy, design a controlled tax haven zone, and invite global capital to participate in its recovery.
The IMF will not build Sri Lanka’s future. Neither will quarterly reviews.
Only policy imagination will.
The choice is stark: remain a debtor economy, or become a destination economy.
History will judge which path Sri Lanka chose.