Is Sri Lanka seeking to promote Internet or not?

Posted on May 8, 2016  /  0 Comments

The government-owned Sunday Observer has carried a story on the unraveling of the previous tax regime affecting telecom services that makes reference to the findings of our Systematic Reviews.

“This will be the highest tax ever imposed on telecom users in the country. It is likely to reduce telecom use, especially of data. It is contrary to government policy seeking to encourage internet use,” Prof. Samarajiva said.

The government should forthwith remove the industry-specific tax of approximately 25 percent that was imposed when VAT was removed. It is unreasonable to impose such a high industry-specific tax on services that are considered merit goods by the government’s ICT promotion policies. Such high industry specific taxes are normally imposed only on demerit goods such as alcohol and tobacco.

LIRNEasia’s comprehensive systematic review of thousands of research articles has clearly established that telecom networks yield a positive impact on livelihoods. It is unfortunate that this industry is being singled out for excessive taxation which is likely to depress investment and set back the transition to a knowledge economy.

Partner, Tax Services, Ernst & Young, Duminda Hulangamuwa said with the increase of VAT from 11% to 15%, the consumer will have to pay four percent more on all goods and services liable to VAT. In addition, services such as healthcare and telecommunications which were hitherto exempt from VAT will now be liable to VAT which means the cost of these services would increase at least by 15 percent.

For instance, the telecommunication services which are currently subject to a telecommunication levy of 25 percent will now have a VAT of 15 percent and NBT of two percent totaling up to 17 percent in addition to the telecommunications levy.

In total, the telecommunication services will be subject to an effective tax of 45 percent. This means a reload that costs Rs. 100 will have a call value of only Rs. 55. Thus, an increase in taxes will adversely affect consumers at large and the business community.

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