Questioning Sri Lanka government’s plan to compel Amazon et al. to use a yet-to-be developed government “common platform”

Posted on November 15, 2016  /  0 Comments

Budget 2017 year on wood cube with pencil and clock top view on wood table,New year business concept.

The Prime Minister of Sri Lanka is in charge of national policies and economic affairs. The Minister of Finance is in charge of finance, the money the government raises and the money it spends. As a result, the Prime Minister presents an economic policy statement before the budget is read.

So it was with some surprise that I saw many policy proposals that did not have direct revenue/expenditure implications in the 2017 Budget, such as extension of the duration of visas issued to spouses of Sri Lankan citizens. The digital commerce proposal is also a policy proposal, but given the objective of ensuring the collection of relevant taxes, one could see a rationale for it being in the Budget Speech.

But it would have helped if the Minister had actually consulted knowledgeable people within government and outside before announcing his solution. Or considered the ability of the government of Sri Lanka to leverage access to a market of only 20 million to compel international giants such as Amazon and E Bay to use his yet-to-be developed common platform.

The identified problem is simple enough: a “bricks and mortar” supplier located in Sri Lanka is liable to collect VAT or other relevant taxes for certain transactions, while a digital commerce vendor located outside the country engaged in the identical business is not. How can the “playing field” be levelled in favour of the domestic, tax-paying vendor? How can this be balanced with the objectives of promoting digital commerce?

Sri Lanka is not the first country to face this problem. But it is the first country to ask a poorly performing government ICT agency to create a common platform and hope that all international digital commerce vendors start using it.

It is worth looking at how the European Union, which seeks to create a digital single market by removing barriers to cross-border digital commerce, has sought to address this problem. With digital commerce already amounting to 7% of retail sales (both the base and the percentage being magnitudes higher than Sri Lanka), the EU would have significant leverage over digital commerce vendors who could not afford to stay out of this massive market. Was the solution a “common government platform” that would be operated by Government? No.

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