Digital economy experts tell govt. to slowdown on taxes

By Chandeepa Wettasinghe
Sri Lanka should not be excessively taxing and dictating terms to the proverbial goose that lays the golden eggs to cover up fiscal deficits, experts on the digital economy advised yesterday.
“In many countries, finance ministers are finding the mobile sector to be a very easy target for increased taxation in different forms. They have their own reasons,” World Bank Senior Regulatory Specialist Rajendra Singh said in response to a question Mirror Business raised on Sri Lanka’s situation.

Speaking at an event titled ‘Realizing digital dividends for Sri Lanka’s youth through inclusive livelihood policies’ organized jointly by the World Bank and ICT policy think tank LIRNEasia, Singh added that finance ministers sometimes cover up their reasons by saying the World Bank and the International Monetary Fund recommended and imposed such taxation.
“So we’re coming up with this report, that shows how exactly in the short term you may meet your fiscal requirements and satisfy your budget deficit and all those things—you understand what are the reasons why they’re putting it—in the long run, it will become very counterproductive,” he said.
LIRNEasia and World Bank research had found that affordable digital services alleviated poverty through education and created entrepreneurs by helping small and medium sized businesses expand and become more efficient.
However, despite bragging about creating a knowledge-based economy, the government recently removed telecommunication services from the 15 percent Value Added Tax exempt list, while the 2017 budget removed tax holidays given to data, leading to a 50 percent effective taxation on mobile services.
Finance Minister Ravi Karunanayake had claimed that higher taxation was requested by telcos and it would not dampen demand, since the funds would be used to create new infrastructure to allow more Sri Lankans to use the internet, which LIRNEasia Chairman Professor Rohan Samarajiva appeared to be skeptical of.

“What does the research say? When you give people affordable network connectivity that they can use, either voice or internet, you’re likely to see very good results—contributions to the economy, contributions to their livelihood. Good things will happen,” Prof. Samarajiva said.
He noted that evidence was murky to support Karunanayake’s standing.
“When the government takes that money, reduces that (network connectivity), discourages that by taxing the hell out of it, and the government will, using its wisdom, provide services. I’m not saying it won’t do any good. I’m saying the evidence is not clear,” Prof. Samarajiva said.
Singh also noted that the government needed to create a wide digital policy which is not limited to ICT or creating infrastructure.
“Just putting high speed internet in Sri Lanka is not going to help the country leapfrog. There needs to be the right policies and regulation,” he said.
The budget had also sought to bring e-commerce platforms, especially those based abroad, under taxation slapped on traditional businesses by creating at least 2 common platforms for e-commerce businesses engaged in retail and tourism operations.

The government had made the move after extensive lobbying by traditional businesses, which make up nearly 95 percent of the economy, who were attempting to stave off the Schumpeterian cycle of creative destruction that occurs during disruptive innovation.
“This is an economy of the size of Greater Mumbai. This is not a country according to their (e-commerce) perspective. This is too small. So, they don’t take us seriously. So if we try to put all kinds of rules, they’ll say ‘We don’t want to deal with you’. It’s the same story with Paypal, even though the government has been asking Paypal to come here,” Prof. Samarajiva said.
Platforms such as Airbnb have committed to collect taxes from their users in other countries after discussions with the respective governments, which the Sri Lankan government is also attempting to do, which Prof. Samarajiva said is a more realistic approach than creating common platforms based on industries.

 Zone24x7 Vice President Sankalpa Gamwarige noted that the Sri Lankan government is putting the cart before the horse when creating digital policies.
“The way we try to implement policies, the way we try to bring policies, I think is not suitable for us,” he said.