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Wednesday July 6th, 2022

Sri Lanka excessive taxes on telecoms had hit rural connectivity: regulator

A student in a remote area trying to connect to the internet for online education

ECONOMYNEXT – Excessively high taxation of Sri Lanka telecom firms in recent years had hurt investment in rural areas but internet use had gone up sharply during the Coronavirus pandemic, the regulator said.

In 2016 and 2017 telecommunication industry was paying 49.67 percent effective tax and in 2018 it was reduced to 37.7 percent by then government and it was further cut to 22.6 percent in 2020, Director general of Telecommunications Regulatory Commission of Sri Lanka Oshada Senanayake said

He was speaking at an online forum organized by LirneAsia a regional policy think tank.

Sri Lanka started charging taxes willy-nilly from 2015 on a so-called ‘revenue based fiscal consolidation’ and channelling large volumes of money into civil service salaries, pensions and subsidies as ‘spending based fiscal consolidation’ was unceremoniously jettisoned, critics say.

A study done by the LirneAsia, a regional policy think tank, showed that Sri Lanka’s internet us among by the population above 15 years had has increased to 44 percent in 2021 from 37 percent 2018.

The study says with 31 percent of new users (aged 15 and above)in 2020 and 2021 citing that they came online due to a need brought about by the pandemic.

Despite the growth experienced, internet use levels in Sri Lanka this year were below that of countries such as India and Nigeria.

Sri Lanka’s sub-par performance in this regard is notable for two reasons.

Empirical evidence shows that countries with higher per capita income often have higher internet use levels.

But Sri Lanka’s internet use levels were below that of countries with lower per capita income levels.

Though Sri Lanka had out-performed these countries in the past, recent high growth in countries such as India where internet use grew by 25 percent annually have led to them overtaking Sri Lanka.

In 2017, 2018 and 2019 internet penetration was 34 percent, Senanayake said. But in 2020 it had jumped to 44 percent.

He said, throughout multiple governments the telecommunications sector was seen as an industry that can be heavily taxed rather than looking at it as a basic piece of infrastructure, which is connectivity, which is important for the country’s digital transformation has to be set in place.

Sri Lanka’s rulers have a tendency to put tax payer funds to state-owned infrastructure that makes losses, but tax private owned ones that run at a profit, critics say. Telecoms also used to get state guaranteed bi-lateral credits when it was fully a state monopoly.

“We have a tax on the telecommunication towers,” Senanayake said.  “Now when we want to accelerate connectivity, how are we justifying a taxation on every tower that the telecommunications sector invests? We cannot do that.”

“From a technology perspective or telecommunication perspective, these absolutely not a delight.”

The telecom tower tax critics say may have been a result of environmental activism.

Senanayake said there was also multiple court cases in recent year with “fragmental regulators”.

“In 2019, there were 16 Supreme Court cases that the regulator as well as the industry was embroiled in,” he said.

“Now what does that mean? The complete regulation and the management of spectrum, and the awarding of spectrum that is required to manage quality of service and to expand 4G and connectivity was an absolute deadlock for three years. That is how we came to a stagnant.”

He said Sri Lanka at one time had the highest 4G penetration rate and mobile penetration rate in South east Asia

“We were the first to start of 5G trials, but look at where we are today,” he said. “Maldives has gone ahead in 5G, India has gone ahead as well as Bangladesh has gone ahead.”

Senanayaka said within the last year and half with the pandemic increasing the internet use and the tax reforms coming into place in 2020.

According to the International Telecommunication Union latest global benchmarking report for 2021, Sri Lanka has come to the top 20 in terms of the most affordable fixed broadband services.

“It has noted as one of the most record making rankings a country has come too far. It keeps getting better.”

“We have come to the 13th Rank across 190 countries for most affordable internet. ”

Senanyaka said, early in 2020, the fixed broadband connections were at about 1.8 million connections and it has increased to about 2.6 million fixed broadband connections in 2021 and also under the project of expanding fibre to home it is planned to enable 2 million fibre to home portsby 2023.

Senanayaka said, for the last 11 years Sri Lanka has not invested enough on rural connectivity. While taxing the firms to the hilt, fund collected for rural connectivity had also not been used.

“So how are we basically expecting a private sector environment to just keep on investing on areas that doesn’t make financial sense”,” he said.

“We have to understand these are listed organization, of course, there has to be shareholder value that has to be created. But then again, where does the role of governments come in?”

He said, a Universal Service Obligation fund in Sri Lanka set up by the regulator collects money from a charge on calls terminated in Sri Lanka.

“Fifty percent of that goes into the treasury, or the government and 50 percent could be retained by the regulator to reinvest back on the industry for this key important piece called rural connectivity,” Senanayaka said.

Senanayaka said, after taking the office in 2020, he had started to use the fund’s money to develop the connectivity in rural areas.

“I started this on early 2020,” he said. “And today the GamataSannivedanya project or we call it the Connect SriLanka project, is cutting across today, as we speak, we’ve started working seven districts, by the end of December, we are launching three more districts, that was our target.

:And we are investing 50 percent of the capital expenditures required for these towers. ”

“I think policymaking is key and it has to be sustained. I think irrespective of whether regimes change or not, that country level policymaking has to be consistent. That’s where we’ve gone wrong. And that’s where we basically fallen behind. And I think we’ve taxed, or we put too much negative impact on the industry itself, to sort out other macro environmental challenges of the economy.”

He said, for the next year, all the telecommunication operators have doubled planned investment to expand connectivity.

“I’m absolutely confident that if we have this top down support, and if we continue to ensure that these policies are continuing across the next five to seven years, we can spring back again ahead of the curve,” he said. (Colombo/ Dec 09/2021)


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