Govt. mulls introduction of digital service tax for e-businesses

• Select Committee highlights need to establish mechanism to regulate e-businesses
• Reveals foreign Gig companies in SL are diverting revenue abroad and not paying taxes to Govt. 
• Highlights need to encourage online transactions to cut costs of printing currency

Significant attention was drawn in parliament last week to the immediate need of establishing a mechanism to regulate e-businesses and effectively collect taxes owed to the Government from these companies.

During a sitting of the Select Committee to study the difficulties in enhancing the rank in the Ease of Doing Business Index in Sri Lanka led by its Chair MP Madhura Vithanage, the rise of a Gig economy consisting of freelancers was observed. 

The committee further highlighted the concerning observation that foreign companies operating within Sri Lanka’s online market are neglecting their tax obligations to the Government and instead, they are diverting their revenue to other countries overseas.

The need to create a fair playing ground for both local and international e-commerce companies in Sri Lanka was also observed by the committee. 

Heads of commercial banks, representatives of local and foreign companies doing business on the Internet, representatives of credit card companies, central bank representatives and others have participated in this committee meeting.

As the Gig Economy is growing rapidly along with the current technological development, the need to encourage business activities conducted through the Internet was pointed out. It was also suggested that a legal framework as well as a digital service tax should be introduced to regulate these businesses.

Additionally, there was a discussion about the importance of creating an enabling environment that can attract more internet-based businesses to operate within the country.

During the meeting, it was also revealed that Sri Lanka is one of the four nations that has failed to sign the global corporate tax agreement by the G20/OECD according to its new two-pillar plan to reform international tax rules and ensure that multinational enterprises pay a fair share of tax.

The chairman also instructed the committee to present a report regarding the plan devised by the Central Bank to encourage digital transactions. This initiative aims to address the significant annual cost of Rs. 3.2 billion incurred in printing and issuing physical currency notes.