Tax incentives for ICT sector are welcome but Digital ID must be top priority for new Govt.

Tax incentives are encouraging and welcomed by all industries, as a boost in the mood, activities and the confidence was needed to revive the ailing economy crawling at less than 4% for two consecutive years with no better performance expected in 2019 after the Easter Sunday attacks in April.

It is evident from the new President's policy statement that he strongly believes in the ICT talents of Sri Lankans and potential of the ICT industry to achieve prosperity for the nation. Nevertheless, in deciding sector priorities, the writer believes that an all-purpose digital ID for all Sri Lankans has to be at the forefront of the digital agenda of the new President. 

Impact on tax incentives for ICT sector

Despite lacklustre performance in the overall economy, ICT sector export earnings grew exceeding 7% in 2018 to earn approximately $1 billion and provided 125,000 highly paid direct employment. 

In addition to VAT and NBT relief, the key direct incentives for ICT sector are:

a) reduction of telecommunication levy by 25%

b) exemption of all taxes for ICT related services 

c) increase of VAT threshold from Rs. 12 million to Rs. 300 million 

d) doubling for PAYEE tax threshold to Rs. 250,000 

e) relief on remittances for foreign earnings. 

The 25% telecommunication levy reduction will help everyone. Sri Lanka has more mobile phones than it has people, and it is a big relief especially for the low-income segment, as mobile phones are an essential part of everyone’s day-to-day affairs. The poor will benefit more, as the percentage of communication cost is higher compared to high-income earners. 

Lower communication costs will further help adaption of online services by more citizens, as almost 50% of mobile phone owners in Sri Lanka have smartphones. The exemption of ICT-related services from taxes will encourage more investments into the sector. ICT industry salaries are comparatively high and the higher percentage of employees in the sector will benefit with the increase of PAYEE tax threshold from Rs. 125,000 to Rs. 250,000. It will result in more savings or higher retail spending. This incentive will also help retain more ICT talent in the country and minimise brain drain. In light of these awesome incentives, it is the duty of the ICT industry to swiftly respond and boost the sector performance and revive the economy.

While welcoming the tax concessions, other areas that need the new Government's attention are:

a) the rapid digitalisation of the Government and vital economic sectors 

b) prioritising STEAM education

c) the expansion of higher education opportunities in technology in order to bridge the demand and supply gap in the ICT industry

d) fostering innovation culture

e) promoting entrepreneurship amongst youth

f) expand support for the digital startup eco system

g) supporting local companies to tap global markets. 

The ICT industry has the potential the transform Sri Lanka’s economy to greater heights by itself in the era of 4IR. 

A digital ID can boost many aspects of governance, such as enhanced national security, transparent administration, efficient and cost effective service delivery, reduced fraud and leakages in social welfare benefit payments, accurate data and statistics for data-driven governance, to name a few. The expansion of the digital economy, proliferation and higher adaptation of online services as a result of the introduction of a digital identity and authentication services will boost country rankings of important indexes such as Ease of Doing Business, ICT Development Index etc.

Digital ID must be a top priority

A digital ID can boost many aspects of governance, such as enhanced national security, transparent administration, efficient and cost effective service delivery, reduced fraud and leakages in social welfare benefit payments, accurate data and statistics for data-driven governance, to name a few. The expansion of the digital economy, proliferation and higher adaptation of online services as a result of the introduction of a digital identity and authentication services will boost country rankings of important indexes such as Ease of Doing Business, ICT Development Index etc.

Successive Sri Lankan Governments since the 1990s have been trying to introduce a digital ID. There have been tug-of-wars between various vendors aligned to powerful politicians who were influencing tenders due to large budgets assigned to digital ID projects. As a result, attempts to introduce digital ID were not successful and several tenders were cancelled along the way.

However, if is doubtful whether there was clarity amongst the policy-makers and implementation agencies of the real bottlenecks that pose challenges for implementing a digital ID. 

Conflicting mandates amongst Government agencies

The real challenge for implementation of the single digital ID for all purposes is the conflicting mandates of relevant Government agencies. In a way, it is blessing in disguise that large public monies were not spent (and large commissions were not made out of public money) on wasteful digital ID implementations in previous attempts, because the conflicting mandates between relevant Government agencies need to be resolved prior to effective implementation of an all-purpose digital identity for the entire nation.

The law governing the identification of persons is Registration of Persons Act No. 32 of 1968 (amended in 2016). Under this Act, Commissioner General of Registration of Persons (Department of Registration of Persons) has the authority to maintain the National Persons Database. Commissioner General is also vested with the powers to provide authentication services of individual’s date with the consent of the National ID card holder.

Meanwhile, Registrar General (Registrar General’s Department established 155 years ago in 1864), who is mandated to register births and deaths under Birth and Death Registration Ordinance No. 17 of 1951, does not have mandate to issue a unique identity for persons, maintain register of persons database or to provide identity verification (authentication) services to third parties. Hence, the Registrar General’s Department cannot issue an ID card at the time of birth. Meanwhile, the National ID Card (NIC) is issued by the Department of Registration of Persons, only for persons above 16 years of age. Hence, citizens of Sri Lanka cannot be assigned a unique identity card till 16 years of age. 

There are other agencies such as the Department of Motor Traffic that also issues drivers licenses which are used for identity purposes. All of these need to be consolidated into a single unique digital ID for all identity and authentication purposes.

Technology related to digital ID, population database and authentication service is not complicated. Sri Lankans had and has expertise on identity and authentication related technologies. As far back in 2012, the Information and Communication Technology Agency (ICTA) implemented a national population registry database at the Registrar General’s Department, which has the capacity to hold more than 20 million citizens’ data. The project also introduced a unique identity named Sri Lanka Identification Number (SLIN ID) for citizens.

Recently, the Lanka Software Foundation voluntarily designed the framework for a National Identity and Data Inter-operability platform which could be implemented at fraction of the cost estimated in earlier attempts using local expertise, and during a very short period of time.

However, the key requirement to making an all-purpose digital ID for Sri Lanka a reality, is the political will at the highest level. It needs clearing the bottlenecks among multiple ministries and relevant Government agencies. This cannot be achieved even by a single line minister or ministry. It needs necessary amendments to centuries-old acts and new regulations to resolve conflicting mandates. Hence, without intervention of the highest office in the country, these conflicts will drag on further, resulting in the country becoming a laggard in the digital age of the global arena. 

The new President being a technocrat with tremendous track record of making things happen is a better bet for long-outstanding digital ID becoming a reality under the new administration. 

Considering its importance and urgency, the formation of digital ID taskforce under the direct supervision of the President will be good step toward achieving this objective. Considering the work already done by the Digital Ministry, ICTA and the industry in general, a digital ID for Sri Lanka within very short period is a real possibility.

The writer is an engineer, graduated from the University of Moratuwa, and holds an MBA from the University of Hull. He is the former CEO of ICTA and the Managing Director of Nimbus Cloud Services Lanka Ltd.