The digital economy is experiencing remarkable growth globally, and Sri Lanka is no exception. Wattegama (2021) valued Sri Lanka’s digital economy at approximately USD 3.47 billion, accounting for 4.37% of its GDP. However, the current tax statutes in Sri Lanka fail to capture the full spectrum of digital transactions that cross borders with ease, as they rely on traditional taxation models based on physical presence. 
The digital economy is experiencing remarkable growth globally, and Sri Lanka is no exception. Wattegama (2021) valued Sri Lanka’s digital economy at approximately USD 3.47 billion, accounting for 4.37% of its GDP. However, the current tax statutes in Sri Lanka fail to capture the full spectrum of digital transactions that cross borders with ease, as they rely on traditional taxation models based on physical presence.
The TRC is likely to address problems of a “level playing field” that come up when a global tech company offers the same service that a local company does.
It was back in 2009 that I was criticized for saying that regulation based on an understanding of the operative Budget Telecom Network Model did not permit strict regulation of quality of service. It was also around then that we started focusing on taxes as a factor. That was repeated many times in Bangladesh by us, for example, when I outlined what needed to be done to achieve Digital Bangladesh. That these things have to be said again and again, indicates we have not been very effective. The national exchequer gets Tk 51 of every Tk 100 spent by a mobile user, leaving less money for the operators to develop network and run business smoothly, the GSMA said yesterday.
When we discovered that Nepal had only spent 2.6 percent of the universal-service funds it had collected since 1997, we were shocked. No government could do worse, we thought. But we were wrong. The Bangladesh government’s disbursement rate is much easier to calculate.
Sri Lanka has not one, but two, government-owned TV channels. They tend to be used for propaganda, but there are occasions when they act like normal news channels, serving the public interest in understanding what is going on. Last week, for example, I was happy to be on a talk show in the midst of a breakdown of fuel supplies debating the issues with a leader of a trade union combine that is trying its hardest to roll back even the current nominal liberalization and restore some kind of retrograde state monopoly. This week, I was invited to come on the show again to discuss the budget. I am generally supportive of the thrust of the 2018 budget proposals, which may be why they invited me.
It was in 1998, almost 20 years ago, that I was invited to a meeting at the Urban Development Authority of Sri Lanka in my capacity as Director General of Telecommunications. They had identified a high point in the city of Colombo to locate ALL the cellular antenna towers and they wanted me to concur with their plans. I explained that the very concept of cells required multiple towers in multiple locations. Twenty years later, the same ignorance is being displayed again. A Minister of the government is making speeches in Parliament about how all of Sri Lanka can be served by nine towers.
As I was thinking about how to explain the silliness of charging LKR 200,000 (USD 1,300) per antenna tower per month as proposed by Sri Lanka’s 2018 Budget, I came across this piece on how African governments were shooting themselves in the foot by following the Willie Sutton doctrine: Unfortunately, instead of seizing such opportunities, many African governments are energetically discouraging the spread of technology. Many ban genetically modified crops, refusing even to accept them as food aid when their people are starving. Almost all invest far too little in science and research, and have byzantine visa systems that discourage skilled immigration. And they tax mobile phone and internet companies at punitive rates. In 2015 mobile-phone operators in 12 African countries paid taxes and other fees equivalent to 35% of their turnover, says the GSMA, an industry lobby.
The introduction of GST to replace the patchwork of state taxes is perhaps the Modi government’s greatest economic achievement. The new regime is expected to come into effect on July 1, 2017. Like everything in India, it’s complicated, with multiple bands and exceptions. It’s interesting that the 18 percent GST rate for telecom services is being challenged on the basis that it is a necessity. Imposing 18 percent tax on telecom is likely to increase the overall tax burden and therefore may have a negative impact on the consumers’ expenses.
They were extremely high to start with. But still, a good thing. Sri Lanka should be careful we don’t take over Pakistan’s position as the most taxed ICT sector. The breaks will see the withholding tax on mobile services drop from 14% to 12.5%, while federal excise duty will fall from 18.
The ill-considered proposal in the 2017 Budget to compel all e commerce transactions to be conducted over a yet-to-be-designed government platform has come up for discussion again. Lahiru Pathmalal, CEO of Takas, one of the Sri Lanka’s more visible e-commerce businesses had this to say to the Sunday Times: “What is ideal is a tax holiday for e-commerce/tech related business that makes heavy investments into growth,” he said. “There has been discussion in regard to travel related booking engines being taxed such as AirBNB and Bookings.com. I believe taxing of booking engines is be ill timed,” he claimed.
We’ve written a lot about taxes on this site. We’ve even showcased studies that showed optimal revenues for government were not obtained by raising taxes. But the current Finance Minister in Sri Lanka does not appear to hear any of this. But we keep hoping. So here is another nuanced contribution from Gabe Solomons.
It has become increasingly common for developing-country governments to extract rents from what they think is an easy target, international communication. After all, the people affected don’t vote in their elections, even if they are in many cases, hardworking expat workers who keep the home economies afloat. But telecom users are not stupid. They have been switching to alternatives in a big way, says Telegeography: First up is the curious discovery that 2015 marked a turning point in the market. It was the first time since the Great Depression that international carrier voice traffic declined.
Deputy Minister Harsha de Silva refers to evidence showing Internet taxes are counterproductive and says current excessive taxes are temporary. Video of interview.
Based on work done on electronic trading in ASEAN and extrapolation from the online freelancing research, I contributed some thoughts on budget proposals to create a government-run platform to collect taxes. That has been picked up in subsequent articles. In the face of government highhandedness, global e-commerce giants have in the past opted not to enter Sri Lanka, and experts such as LIRNEasia Chairman Professor Rohan Samarajiva have expressed concerns that new interference would lead to those operating in Sri Lanka to leave the country as well. However, some platforms such as Airbnb have a history of collecting taxation from customers and providing them to governments, if requested. Officials admitted that many budget accommodation units are not eligible to pay taxes, which would require amendments to existing legislation.
Imposing an additional tax on a specific good or service results in the reduction of its use. Generally, this is recommended for demerit goods such as alcohol and tobacco. In Myanmar, the government appears to believe telecom is a demerit good, collecting a five percent tax from all telecom bills since April 2016. The President says it will be used in sectors that “directly help people.” But this report shows that all funds collected after April have gone to general expenditures of government.
The evidence is strong about positive impacts on livelihoods from simply the connectivity enabled by existence of mobile networks in rural areas. With regard to information services provided over those networks, by the government or by the private sector, the evidence is not as clear. It’s not that the evidence shows no positive impact, but that the research has not been able to capture the evidence. The news releases describing the findings in Sinhala Tamil English