Govt.’s digital push snubs Lankan firms via discriminatory VAT vis-à-vis foreign firms

Wednesday, 13 December 2023 00:00 - - {{hitsCtrl.values.hits}}

Services offered by local firms such as PickMe to suffer 20.5% cost disadvantage against Uber which operates core service out of the Netherlands
Local firms cry foul over uneven playing field; warn discrimination will force them to relocate overseas
Call for change in over two decades old VAT Act to ensure equal tax regime for both local and overseas-based digital service providers
Opines Digital Sri Lanka will be owned by foreign entities resulting in digital colonisation
Warn debacle will be a big setback for President Wickremesinghe-led Government efforts to foster an inclusive digital economy

The Government’s much trumpeted “digital” push is likely to be sans 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.

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. She said that the VAT Act of 2002 only recognises 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.

“With Sri Lankan entities providing these services being uncompetitive, they will resort to going offshore,” analysts opined.

“Digital Sri Lanka will be owned by foreign entities resulting in digital colonisation,” they warned, adding that such a debacle will be a big setback for President Ranil Wickremesinghe-led Government efforts to foster an inclusive digital economy.

President justifies VAT on local supply of IT and digital services