Online transactions to be taxed
As the Sri Lankan e commerce sector blossoms from infancy to maturity, the government is gearing to regularise the sector and impose taxes on online transactions.
A common platform is to be created to facilitate online firms such as Amazon, e-bay, etc to collect taxes on behalf of the government for transactions carried out within Sri Lanka, official sources revealed.
The Information Communication Agency (ICTA) will create a common platform to facilitate these online platforms to collect taxes on behalf of the government for transactions carried out within Sri Lanka. This common platform will be monitored by the Treasury.
According to the Central Bank annual report 2016, IT related activities have seen a significant growth, a major portion coming from e-commerce.
This has resulted in the flooding of websites and mobile apps in the market, basically engaging in commercial transactions.
It has also become a method to bypass the formal taxes and charges that are otherwise applicable in trade and financial transactions, a senior Finance Ministry official told the Business Times adding that this results in significant revenue leakages to the government.
Due taxes are not properly charged at the points of port, airport and the post office and courier services when such goods enter the country via online transactions, he pointed out.
The problem is due to the absence of any special provisions to regulate taxation in this sector, he said pointing out that the ministry is now considering the formulation of necessary tax provisions for the purpose of assessment and collection of taxes.
Taxation of e-commerce or online transactions creates a lot of practical problems since it is difficult to establish the trade or business carried out in Sri Lanka by the relevant foreign parties, a senior Inland Revenue Department official said.
A tax could be levied on the local recipient of goods but that may also create problems. Many countries still watch the situation since it is a complicated matter, he said.
Local firms engaged in e-commerce were of the view that the efforts to introduce a state-linked e-commerce and online payments platform appear misguided as it can stifle entrepreneurship in the burgeoning digital economy.
The Government is thinking that every e-commerce provider in the world including Amazon and e-bay will go through some platform that is yet to be designed and is to be operated by the ICT agency, a top official of an E commerce firm said.
Lahiru Pathmalal – CEO, Takas Pvt Ltd, an e-commerce firm told the Business Times that e-commerce is a tech driven retail business that generally loses cash for a short period of time to capture market share and add value to the end consumer.
e-commerce makes generally heavy investments in both technology and fulfillment. The local e-commerce industry is no different, they have added value to both the end consumer and the Sri Lankan economy by changing how consumers buy products.
“What is ideal is a tax holiday for e-commerce/tech related business that makes heavy investments into growth,” he said.
“There has been discussion in regard to travel related booking engines being taxed such as AirBNB and Bookings.com. I believe taxing of booking engines is be ill timed,” he claimed.
All funds collected by these booking engines are transferred to the Sri Lankan business other than the commission they charge for their services (much like a traditional travel agent who is based outside Lanka).
“Which means the hotel revenue (if making profits) is taxable by the Lankan government. If taxes are levied on these booking engines without prior consultation and agreement there is a chance of these leaving Sri Lanka which means small businesses that depend on these will get adversely affected,” he pointed out.
AirBnB will close down operations in Sri Lanka if the government tries to interfere in their business. This will affect around 7000 families depending on it by renting out their spare rooms for foreign travelers, another e-commerce firm head said.
The ministry should start a dialogue with e-commerce firms, ICT experts and eminent economists, before trying to regularise the sector and impose any taxes on the industry, he emphasised.
The Government is planning to regulate businesses operating in the e-commerce sector because it wants these businesses to operate under the accounts of banks which are locally based, a senior Finance Ministry official said.