-By LeN South Asia Correspondent
(Lanka-e-News -12.May.2025, 11.45 PM) Some stories hide in plain sight. Others are buried so deep beneath bureaucratic paper trails and ministerial handshakes that they begin to resemble corporate folklore. The saga of John Keells Holdings (JKH), its subsidiary South Asia Gateway Terminals (SAGT), and a quietly forgotten tax assessment from 2007-08, belongs firmly to the latter. But now, nearly two decades later, the ghosts of that assessment have returned—and they're knocking on the doors of Colombo, Washington, and possibly a few Caribbean tax havens.
According to newly surfaced internal memos and regulatory chatter, John Keells is facing a wave of scrutiny over an opaque tax assessment initially issued by Sri Lanka’s Inland Revenue Department (IRD) during the tail end of Mahinda Rajapaksa’s first term as President. At the time, the bill allegedly ran into the billions of Sri Lankan rupees. By 2010, however, it was conveniently "re-assessed," "renegotiated," or simply "reimagined"—depending on whom you ask.
Now, as Sri Lanka's newly elected NPP government promises an era of anti-corruption crusades and fiscal transparency, the long-forgotten case is back under the microscope. And it’s raising uncomfortable questions not only for JKH but also for a handful of former political actors—most notably Milinda Moragoda, the then Minister of Economic Reform, who was last seen advocating “ethical capitalism” while serving as ambassador to the U.S.
The controversy centres around SAGT, Sri Lanka’s first Public Private Partnership in port operations, where JKH holds a substantial stake. Around 2007-08, the IRD reportedly assessed SAGT with a hefty tax liability, citing irregularities in revenue declarations and BOI (Board of Investment) exemptions. At the time, JKH was in the middle of an aggressive expansion drive—locally and internationally.
But here’s where it gets murky. By 2010, following a closed-door review process between the company, the IRD, and what sources euphemistically describe as “ministerial facilitation,” the assessment appears to have simply evaporated—swept under a bureaucratic carpet that had seen one too many feet shuffle over it.
Did the company pay the full amount? Was it reduced or waived? And on what basis?
“No one really knows. Or rather, those who do are maintaining an uncharacteristic silence,” said a former senior tax officer, now retired, who requested anonymity but chuckled when asked if political interference played a role. “Let’s just say the file had more fingerprints than a Colombo tea shop’s cash register.”
But this isn’t just a domestic scandal. A $175 million loan, which received from IFC—sourced in US dollars—raised by John Keells in the aftermath has come under U.S. scrutiny. The loan, which was eventually converted into equity through a structured financing deal, may not have been accompanied by full disclosures required under U.S. financial regulations.
As per the Foreign Corrupt Practices Act (FCPA) and other U.S. treasury guidelines, foreign entities seeking lending or equity transactions from U.S. institutions must disclose any pending or past tax disputes—especially those that are material or unresolved. No such disclosure appears in JKH’s public filings or in their investor prospectus tied to the transaction.
A legal advisor familiar with U.S. Securities and Exchange Commission (SEC) compliance protocols noted: “If John Keells had an unresolved tax liability at the time of the loan, it should have been declared. The absence of such a disclosure could constitute a regulatory breach, unless they received a specific waiver—which, in this case, there is no evidence of.”
Unsurprisingly, the revelation has reached the ears of certain congressional aides in Washington. One such aide confirmed off the record that there is “growing interest” in examining whether JKH circumvented disclosure requirements while securing U.S. financial instruments.
A letter purportedly drafted by a bipartisan group of lawmakers to the U.S. Treasury and SEC is said to be circulating—requesting an inquiry into the matter. If such an investigation were launched, it would mark one of the first times a Sri Lankan conglomerate is subject to American scrutiny under post-2008 financial regulations.
Back in Colombo, the response from JKH has been... corporate. A spokesperson offered the usual boilerplate: “John Keells Holdings is committed to the highest standards of corporate governance and regulatory compliance in all jurisdictions we operate in.” Translated from PR to English: “We’ll talk when the subpoenas arrive.”
Another curious omission is the Colombo Stock Exchange (CSE). Under its listing rules, companies are required to disclose any material legal or tax-related risks that could affect shareholder value. There’s no record of JKH ever disclosing the 2007-08 tax assessment—neither in its annual reports nor in any market-sensitive disclosures.
A former CSE compliance officer, who has since moved to a think tank (as all good former regulators do), said: “If this assessment existed and was not disclosed, the company would have been in clear breach of listing obligations. This isn’t a minor tax query—it’s a material liability.”
He added, “It’s amazing how certain corporate elephants tiptoe across regulatory landmines without setting off a single alarm.”
The role of Milinda Moragoda is a tantalising subplot. At the time of the assessment’s ‘disappearance’, he was one of the key figures in economic reform and was considered close to both the President and the Colombo business elite. His name repeatedly comes up in IRD files and BOI correspondences related to high-profile tax settlements.
Critics allege he may have brokered or facilitated the retraction of the SAGT tax bill. Moragoda, currently reinventing himself as a philosopher-ambassador and occasional policy pundit, declined to comment for this article.
One source quipped, “Milinda always said he was a bridge between the private sector and government. Turns out he might have been a toll-free highway.”
Defenders of JKH have suggested the assessment was flawed because SAGT operated under BOI-approved concessions. But critics say that’s beside the point. “Even BOI companies are not immune from tax if they’re found to have violated terms,” said a former IRD commissioner.
Moreover, any reclassification or retrospective exemption should have been published—or at least recorded in the company’s filings. That didn’t happen. Instead, what followed was a decade-long corporate silence, conveniently punctuated by a string of profitable quarters.
The newly elected NPP government, riding high on a platform of anti-corruption, has reportedly instructed the IRD to re-examine the 2007-08 SAGT file. There are whispers that a forensic audit is being commissioned to trace the original assessment, the subsequent re-negotiation, and whether political pressure played a part.
“The public deserve to know whether one of Sri Lanka’s largest corporates received special treatment,” said a senior NPP official. “More importantly, they deserve to know if that treatment extended across borders—into American loan books and international capital markets.”
There’s another elephant in the room—or port, as it were. If the original assessment was improperly waived, then John Keells may be liable not just for the principal amount but for over a decade’s worth of accrued interest and penalties. Some estimates put the revised liability well into the tens of billions of rupees.
If found liable, it would mark one of the largest corporate tax recoveries in Sri Lankan history—and could set a precedent for other BOI-era tax anomalies currently gathering dust.
For now, John Keells remains outwardly unbothered, focused on posting quarterly profits and expanding its footprint across South Asia. But behind the glossy investor decks and boardroom smiles lies a growing cloud of legal and regulatory uncertainty.
As both Colombo and Washington sharpen their pencils, the question is not just whether JKH misled regulators—but whether it believed it was too big, too local, or too well-connected to ever be held accountable.
In a country where impunity is often a perk of corporate success, this case may finally test whether the tide has turned.
-By LeN South Asia Correspondent
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by (2025-05-12 18:26:29)
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