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. 
Taxation is a critical tool for sustainable development, playing a vital role in reducing poverty, ensuring food security, and enhancing social protection. In light of these important issues, the Institute of Charted Accountants of Sri Lanka hosted its Annual Economic and Tax Symposium under the theme “Shaping Fiscal Foundations: Tax Policy as a Catalyst for Sustainable Economic Growth,” on 1st and 2nd of August, 2024. Gayani Hurulle, Senior Research Manager at LIRNEasia, was a panellist at a session titled “Taxation on Environmental, Social and Governance (ESG) Factors: Achieving the United Nations’ Sustainable Development Goals (SDGs) and International Trade and Tax Policies” at the symposium. Other panellists included M. Ravindrakumar, Customs Management Expert; Ayesha Ashanthi, Commissioner, Department of Inland Revenue; and Dr. 
Gayani Hurulle, Senior Research Manager at LIRNEasia, recently discussed the challenges facing Sri Lanka’s digital economy in an interview with Yarl TV. Gayani highlighted various policy challenges and opportunities pertaining to the digital economy, drawing on LIRNEasia’s research. She also highlighted the need for policy reforms to align with the rapidly evolving digital landscape. One of the pressing issues she addressed was digital taxation. She underlined that the current tax laws are not designed to/being used to collect taxes from large technology multinationals that don’t have a local physical presence, creating an uneven playing field. 
LIRNEasia together with the South Centre hosted an expert forum on Policy Options for Digital Taxation in South and Southeast Asia on 19 September 2023. The event was a closed-door event, attended by over 110 tax officials, with participants registered from Global South 40 countries. The event, based on research conducted jointly by LIRNEasia and the South Centre, looked to provide a forum for the organizers and participants to share their experiences and weigh relative merits of different policy options for providing new taxing rights to capture revenues of large technology multinationals in local tax nets. The policy options included (i) domestic measures such as digital services taxes and withholding taxes (ii) OECD/G20’s Amount A Multilateral Convention and (iii) Article 12B of the UN Model Tax Convention.LA SC Digital Tax Forum_Panel 2_Implementation considerations.
As suppliers of public goods (policy relevant research), we at LIRNEasia know the importance of taxes. If there were no taxes, there would be no Internet. Much of the research being done today on multiple aspects of the response to COVID-19 is funded by taxes, including the flood of scientific articles that we are struggling to keep up with. The problem is that taxes have traditionally been levied on businesses located within the boundaries of the nation state. Tax is coercive, so in essence tax collection requires the ability of the state to audit tax declarations and to throw people into jail if they lie to the state or if they fail to pay taxes that are due.
It was in 2009 that LIRNEasia first engaged systematically with the interaction of taxation and ICT promotional policies. This was when working on an assignment for the OECD. We had of course engaged with mobile-only taxation in Sri Lanka and in Bangladesh. But the issues were simple back then. No discriminatory taxes that treated mobile services as demerit goods.
The way most governments tax mobile use, the answer would seem to be yes. It is treated like cigarettes, a demerit good that imposes negative externalities on society; and is thus subject to additional taxes. The research reported below examined the question of whether mobile use is addictive (albeit in a different context, that of mobile use while driving) and found that no, it was not addictive: Paul Atchley, an associate professor of psychology at the University of Kansas, conducted research this year and last to determine whether young adults had enough self-control to postpone responding to a text message if they were offered a reward to do so. The idea was to determine whether the lure of the device was so compelling that it would override a larger reward. The research found that young adults would postpone the text.
The Pakistan Telecom Authority in their December 2008 quarterly review gives the reasoning behind the government’s decision to impose high taxes on mobile phone use. To reduce the high fiscal deficits, the government had increased taxes. The increase for the telecom sector was over 40 percent; for other sectors it was only seven percent. However, the end result was unexpected, though it could have been predicted from economic theory. In the two quarters after the tax increase, the tax revenue from mobile declined.
Government has released the 2008 second quarter economic performance data, which shows, again, that the telecom sector is growing the fastest, at 23.2 per cent (as against 21 per cent, 2007 Q2), followed by mining and quarrying at 19.6 per cent. In his weekly newspaper column in the Lankadeepa, Mr Udaya Gammanpila, the Chairman of the Central Environmental Authority and the main proponent of mobile-specific taxes, has posed the question to me why the mobile sector keeps growing even as they keep loading taxes on it. For example, the mobile subscriber levy of 10 percent of every bill was in effect in 2008 Q2.