Sri Lanka budget 2021 impact on the information technology sector
ECONOMYNEXT – Sri Lanka’s budget 2021 comes after the last administration raised tax on cross-border e-commerce transactions to 3.5 percent accelerating digital protectionism, and raising the costs of small firms and self-employed developers who use payment cards to purchase inputs.
Some small IT developers have also said they require specialist coders in niche areas temporarily to compete for contracts but are blocked tight visa regulations.
The 2021 budget has outlined a number of tax breaks for IT firms as well as a credit scheme.
Imran Furkan, a former Chief Executive Officer of the Sri Lanka Association of Software and Service Companies analyses the positive effects of the budget 2021 of the IT/BPM sector.
The potential for exponential growth
The National Export Strategy of Sri Lanka aims to generate USD 5.0 billion of revenue creating 200,000
direct jobs and establish 1000 IT/BPM startups via the IT/BPM industry. This budget clearly codified this message through incentivizing the IT/BPM industry as a thrust or core industry.
The IT/BPM industry requires little capital, can grow exponentially very fast and can help prevent brain drain while offering the capacity to grow internationally and boost efficiency of every other industry as well.
Signals to IT/BPM industry
The budget proposals signaled that “Earnings from both domestic and foreign sources by those engaged in businesses in Information Technology and enabling services and also their earnings when made while being resident or non-resident will also be exempted from income taxes”.
Removing all taxes would influence more people to get in to the industry while also helping attract Sri Lankan diaspora to invest in Sri Lankan startups plus physically return to the country to work in this industry.
Additionally, it gives long term certainty for larger projects as well. “Investments exceeding USD 10 million with potential to change the landscape of the economy, in the areas of export industries, dairy, fabric, tourism, agricultural products, processing and information technology will be provided with concessions up to a maximum of 10 years under the Strategic Development Law”.
Therefore, the budget meets the requirements of the IT/BPM Industry in terms of generous tax exemptions.
Encouraging listings of IT/BPM Companies
Many local startups such as Pickme are now ready to list hence the incentives such as “to provide a 50 percent tax concession for the years 2021/2022 for such companies that are listed before 31 December 2021 and to maintain a corporate tax rate of 14 percent for the subsequent three years”will encourage more listings of IT/BPM companies and let the general public benefit from the growth of the IT/BPM industry.
Enabling legal framework
The intention to introduce laws relating to data security, cyber security and intellectual property rights, which I have been personally pushing for will protect IT/BPM stakeholders and help establish the country as a favoured investment destination.
Enabling telecom infrastructure framework
Creating a ‘Technology based society and digitally inclusive Sri Lanka” is the government’s vision. Under this the “Gamata Sanniwedanaya” (Communication for the Village) aims to grow the Telecom infrastructure to provide high speed access across the country, which will permit the IT/BPM industry to be located anywhere.
Indirect boost to IT/BPM
The budget aims to create Digital Governance using Information Technology and the “Establishment of an international e-commerce and e-payment systems, the high-speed data exchange system and the related mobile network systems are investment priorities”. This would offer many opportunities for the IT/BPM industry to be partners.
The proposed techno parks could be a boost to the electronics industry as well as businesses engaged in the Internet of Things (IoT).
It is proposed to provide loans of Rs.500,000 at an interest rate of 4 percent as start-up capital to support the young men and women, who start their own businesses on the successful completion of vocational education. This loan scheme will have a grace period of one year for both principal and interest, with a further 4 years to settle the loan. This will help encourage entrepreneurship which will benefit the IT/BPM industry as well any business today has some level of IT/BPM involvement.
This appears to be a dream budget for the IT/BPM industry.
Profile: Imran Furkan FCPA, FCMA, MBA, – CEO Tresync
Imran is passionate about one thing – collaboration. Connecting people together, fostering industry partnerships, and advising on macro socio-economic and technological strategy.
This is evidenced by his achievements in Senior Management and Board Directorship roles in industries such as Finance, Media, IT/ BPM, Commodities, and Professional Services in the Asia-Pacific region.
He is the former CEO of the Sri Lanka Association for Software Services Companies (SLASSCOM) which is the national chamber for the knowledge and innovation industry in Sri Lanka also the former CEO of the Sri Lanka Press Institute (SLPI) and a former Non-Executive Independent Director of Trade Finance & Investments PLC.