Home » Govt.’s digital initiative rebuffs Lankan firms via discriminatory VAT.

Govt.’s digital initiative rebuffs Lankan firms via discriminatory VAT.


By: Staff Writer

Colombo (LNW):The Government’s much publicized “digital” push is likely to be without home-grown Sri Lankan firms as they won’t be VAT exempted whilst foreign companies in the same field are let off due to the failure of the law.

Sri Lanka is ambitious in transforming the country’s economy and society through the full integration of digital technologies and be amongst the digital leader in the Asia – Pacific.

This involves ensuring that it can compete globally in areas such as innovation, entrepreneurship, and digital skills. It also includes promoting sustainability and inclusiveness in the digital economy to ensure that no one is left behind and that all citizens benefit from the opportunities provided by the digital revolution.

A National Digital Strategy for Sri Lanka will support the building of one of the three pillars identified for the new economy.

Through its implementation, the strategy shall accelerate Sri Lanka’s development trajectory towards becoming a developed country.

The apparent discriminatory regime for local e-commerce and digital services companies figured at a meeting of the Parliamentary oversight Committee on Public Finance (COPF) chaired by MP Dr. Harsha de Silva recently.

At the meeting, an advisor to the Inland Revenue Department confessed that come 1 January 2024, though local firms will be subject to the higher 18% VAT, due to the loophole in the over two-decade old law, transactions facilitated by foreign firms will be exempted.

He said that the VAT Act of 2002 only recognizes supply of goods and services by an entity or person physically present in Sri Lanka and the scope doesn’t include services locally offered by offshore companies.

A representative of Asia Internet Coalition (ACI) said via online at the COPF meeting the best practices in the region was taxing the consumption of goods or services locally. Representatives of Uber, PickMe were present at the COPF consultation.

Industry analysts expressed serious concern over the bizarre development. This in effect means, services of local digital economy firms for example PickMe will be 20.5% costlier than foreign owned Uber though registered in Sri Lanka is operated out of the Netherlands.

Same applies to Kapruka and other ecommerce portals which also compete with foreign firms operated platforms.

“Without amending or drafting a new Act these exemptions being removed is criminal. This creates a 20.5% cost disadvantage to all Sri Lankan domiciled businesses,” they said adding policy/law makers must address this immediately and ensure a level playing field will exist when these exemptions are removed.

Such a course would ensure a hyper competitive environment and make the industry more dynamic.

They warned that failure to address this serious anomaly and discrimination will create an unfair advantage to non-resident service providers.

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