Sri Lanka cabinet clears tax to protect local e-commerce firms

ECONOMYNEXT – Sri Lanka’s cabinet has approved a 3.5 percent tax on services bought through credit and debit cards, as the island accelerated services protectionism originally started by a previous regime.

Justifying the tax, at the time goovernment officials said companies like PickMe and Takas paid domestic income tax but firms like Uber did not.

It is not clear whether Uber is actually making profits in Sri Lanka.

Uber has given employment to a number of Sri Lankan drivers and now Uber eats is giving employment to motorcycle riders and expanding the reach of existing restaurants and also allowing start up specialist food providers.

A previous administration slapped a 2.5 percent tax on credit cards despite value added tax and nation building tax being charged at retail level already on goods and services.

Many start ups in services sector are also using credit cards to buy inputs.

Sri Lanka’s Federation of Information Technology Industry of Sri Lanka also wrote to the finance ministry saying a majority of SME businesses use foreign services for part of their operations.

"With the enactment of this proposal, both the ICT industry and the country will be affected," FITIS said in a statement.

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Countries like Vietnam which had already beaten Sri Lanka on hard goods, and are now emerging in services exports and infomation technology will not have similar constraints. Vietnam also has Paypal inward remmittance services.

Sri Lanka has a history of stifling economic activity ranging from the paddy land act, outright expropriation, crippling import duties, trying to reverse urbanization (which seems to have been abandoned now), and trying to push the workforce from service sector to the factory floor.

Though the administration came to power promising to reduce the number of taxes but broadly remove exemptions on value added tax, a plethora of new taxes have been imposed. (Colombo/Aug15/2019)


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