A major shift is underway in international tax policy. Nearly 140 countries, under the OECD/G20 Inclusive Framework, have agreed to implement a global minimum corporate tax of 15 percent and to reallocate taxing rights over multinational corporations. Designed to curb tax avoidance and profit shifting, this landmark deal is intended to modernize a system that has struggled to keep up with the digital economy. But for developing nations like Sri Lanka,
the implications are far-reaching, and complicated.
At the heart of the deal are two pillars. Pillar One reallocates some taxing rights from where companies are headquartered to where they earn revenue. This primarily affects tech giants and global consumer brands. Pillar Two introduces a global minimum tax, ensuring large corporations pay at least 15 percent regardless of where they are based. While aimed at preventing a race to the bottom among tax havens, it also affects countries that use tax
incentives to attract investment.
Sri Lanka has long relied on tax holidays, Board of Investment (BOI) concessions, and special economic zones to bring in foreign direct investment. These incentives, often below the global minimum threshold, could now be challenged under the new framework. If a multinational pays less than 15 percent tax in Sri Lanka, its home country can claim the difference, reducing Sri Lanka’s attractiveness as a tax-efficient location.
Exporters in sectors like apparel, IT, and electronics, many of whom operate under BOI schemes, may face added scrutiny from parent companies and auditors. Large firms may begin to reassess their regional operations, choosing countries that offer not just tax benefits but regulatory predictability, infrastructure, and skilled labor. If Sri Lanka’s tax competitiveness weakens without offering other advantages, it risks losing investment to countries better aligned with the new tax architecture.
However, there are ways to adapt. Sri Lanka can transition from competing purely on tax to competing on value. This includes improving ease of doing business, digitizing customs and trade procedures, and investing in logistics and supply chain ecosystems. Promoting sector-specific innovation zones, sustainable manufacturing hubs, and export-friendly digital infrastructure can offset the reduced appeal of tax incentives.
Additionally, Sri Lanka should actively participate in international tax dialogue. While the global minimum tax is being led by OECD countries, developing nations must advocate for fair implementation, capacity-building support, and mechanisms to preserve development policy space. Multilateral platforms such as UNCTAD and the South Centre can amplify these concerns.
The global tax deal is here to stay. For Sri Lankan exporters, it signals a new era in investment strategy, trade compliance, and corporate governance. Success will depend on how quickly the country can shift from offering low taxes to offering high value, through better institutions, more efficient processes, and a compelling national brand.
