Sri Lanka budget provisions on data taxation questioned

Posted on November 24, 2016  /  0 Comments

So the Daily Mirror, the leading English language daily, carried my comments on the illogical tax proposals.

“Around 2010, the Government considered the complexity of taxes affecting the telecommunication sector and exempted telecom from the Value Added Tax. Instead a twenty percent tax was imposed for telecommunication which was remitted to the Government” said Former Director General of the Telecommunication Regulatory Commission and Telecommunication Expert Prof. Rohan Samarajeeva. “The previous Government also considered the data issue as separate from voice and value added services. By 2014, voice and value added services were taxed at about twenty five percent. Considering the disappointing figures with regard to the use of data in Sri Lanka, only a thirteen percent tax was charged on data back then. However, the Government imposed a Value Added Tax on telecommunication services last May.

I believe that there should be a few exceptions for VAT although everything else should be subjected to a general tax regime. However, the original tax which was imposed on telecommunication as a substitute to VAT still remains the same. So when this is added up, a consumer has to pay fifty rupees as tax for every hundred rupees of data use he or she uses. This is very disappointing. This suggests that the Government really wants to discourage internet use which I find very odd. I find this odd because from one side they are discouraging internet use while on the other hand, they are spending money on tablets.

This Government is also assuming that every e-commerce provider in the world including Amazon and e-Bay will go through some platform that is yet to be designed and is to be operated by the ICT agency. Again I find this unusual, given the Prime Minister’s statement in the Economic Policy that he wants to encourage digital commerce activities. This certainly is not a way to encourage e- commerce in the country although this has been mentioned in the budget. The budget refers to this matter more as an ICT related issue rather than a revenue measure for the Government. I think that this simply would be counter- productive to our country’s e-commerce players.

The proposed levy of two hundred rupees for SIM card activation is an idea the Government has picked up from retrograde and regressive countries; a similar situation that was witnessed in countries like Bangladesh. According to the budget, it is proposed that the two hundred rupee levy imposed on SIM Card Activation Levy (SCAL) will help discourage the use of mobile connections temporary for fraudulent and criminal activities. This is not practical because two hundred rupees is not going to stop a criminal from using a SIM from carrying out their nefarious purposes. One of the basic principles of public finance is that if you want to encourage something, you don’t impose additional taxes upon it and this Budget had failed to grasp its meaning in terms of the telecommunication sector” Prof. Samarajeeva added.

– See the full story here.

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