How telecom tax reduction can positively impact e-commerce

By Amila Muthukutti


Sri Lanka is a small market for any business, as it is a tiny island with comparatively small number of population. 

However, even this small market could not be fully harnessed, mainly due to the thirty-year long war which conquered a significant part of the country. 

It is true that the war is no more, but what has influenced people not to have direct access to the market and to be active consumers is the lack of information apart from poor purchasing power which undoubtedly decides on their living standard and the existence of businesses. 

It is needless to state here that previously existed distance between producers and consumers has predominantly narrowed to the one click, owing to the technology, especially internet which has created virtual market where consumers are highly engaged at every minute and can get influenced over spending habits like never before. E-commerce plays a pivotal role in taking the economy forward, providing consumers with opportunities to buy best possible products at a low cost of money and time.


Telecommunication industry is one of the fastest growing industries in Sri Lanka, since everyone holds a mobile phone and stays online, regardless of their income level. Sri Lanka, mobile telephone connections of which were 2644 in 1992, has recorded 27,157,647 mobile connections in March, 2017, according to TRCSL statistics. It seems that a luxury item has converted into a tool used by common man. 

Unlike in the past, frequently used smartphones have given users a chance to stay online, making a sharp rise of the number of social media users whose dominance has gone up politically as well as economically, in other words, impacting on governments to change their policies and impacting on businesses to change their products and price etc. Sri Lanka needs sophisticated digital infrastructure to accelerate development drive, increase the productivity and explore new knowledge frontiers. 

Levy removed  

The government decided to remove 25 percent telecommunication levy imposed on internet services in order to make sure a higher online participation of the population. This will come to effect from September 1. When the government that came into power with the promise of free Wi-Fi imposed a levy on internet services, it was heavily criticized. Accordingly, removing the levy is highly commendable step with regard to human resource development in the country. 

Removing previously imposed levy is not enough at all, because many more ought to be done, in order that even those in rural areas can go online. 

When previously imposed tax is removed, the industry comes again to the state where it was. As a country, we don’t want to go back. People have to be encouraged to stay online by giving more concessions to the industry, as this is not just another industry, but an industry which can do a lot for the growth of other sectors in the country. 


Even if Sri Lanka is well ahead of other regional competitors in terms of literacy rate, we cannot be satisfied with prevailing IT literacy rate. It is not wrong to say that people with IT literacy have gathered in Colombo, when rural people still struggle to connect online, due to poor internet coverage in distant parts of the country. It is under these circumstances that businesses engaged in e-commerce have still covered a smaller part of the market. 

According to the computer literacy statistics declared by department of census and statistics in 2016, at least one computer is available in 21.6 percent households in the country. It means one out of every five households owns either a laptop or a desktop computer. This percentage is 35.4 percent in urban sector, 19.6 percent in rural sector and 6.1 percent in estate sector. Even though these data are true enough, these will not help so much, because of higher internet participation through smart phones which have now become more popular for being online than traditional desktops or laptops. 
Equal distribution of using internet among households in the country is of significance, if we are to reap the benefits of this tax reduction. Colombo district shows 31.5 percent of population using internet, that’s the highest in the country, when Trincomalee district shows 5.2 percent, that’s the lowest. Furthermore, only 9 percent of the population has used e-mail facility in 2016. These percentages cannot be lightly taken into account, as they warn of people’s IT literacy in the country, an important factor of human development. 


However, it can be expected that people’s participation in online activities would impact on the country politically and economically. 

When larger online traders in the world like amazon and alibaba claim a significant share of the market through online transactions, people in Sri Lanka are still used to going to a traditional super market and buying. Online marketing firms that aim at different industries such as vehicles, lands and retails have emerged for past few years. 

Two main factors that really disturb IT strategy of the nation are the lack of IT literacy and cost of internet. We return the state where we were by removing previously imposed levy on internet. That is not need of the hour. Further steps must be taken to reduce internet cost in the country, in order that people stay online frequently. 

 (Amila Muthukutti is an economist) 


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