Government to regularise e-commerce trading for taxation
Sri Lanka’s e-commerce trading service is to be regulated in order to safeguard the interests of the public, Central Bank (CB) sources revealed.
The government is gearing up to regularise the sector and impose taxation on online transactions soon.
The CB, as the regulator, will continuously monitor and provide guidance in the form of standards for e-commerce trading service providers, a senior official of the CB said.
The aim is to open a secure channel for e-commerce trading and Internet payment gateways, he disclosed.
Most of the global e-commerce sites including PayPal are available in Sri Lanka but has limitations due to an inadequate refund mechanism and inward receipts.
Increased competition from those sites such as booking.com and Airbnb has resulted in demands by the Tourist Hotels Association of Sri Lanka (THASL) for government to consider regulating e-commerce businesses.
Cross border e-commerce is limited to purchases of products from popular overseas sites such as ebay and Amazon. Several local e-commerce firms sell imported goods.
The Information Communication Agency (ICTA) will create a common platform to facilitate online firms such as Amazon, ebay, etc to be able to collect taxes on behalf of the government for transactions carried out within Sri Lanka. This common platform will be monitored by the Treasury.
The Consumer Affairs Authority is also taking steps to protect the consumer in terms of e-commerce transactions.
According to available statistics, the current e-commerce market in Sri Lanka stands at around Rs. 25 million or 1 per cent of the total trade and is projected to grow about 3 per cent in the future.
The government plans to ensure these businesses operate under the accounts of banks which are locally based.
This is in light of the whole e-commerce process where Sri Lanka is trying to come up with more flexible foreign exchange laws under the new Exchange Control Act.
Geneva’s International Trade Centre has also called for expanding Lankan e-commerce payment facilities beyond the present set of few large financial institutions so that more Sri Lankans can get online to transact.
Sri Lankan consumers despite showing a very high rate of smart phone use are slow to use e-commerce transactions due to concerns of unsafe nature of online sales, online safety as well as lack of protection of their online data.
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 on- line transactions, he pointed out.
The problem arises due to the absence of any special provisions to regulate taxation in this sector, he said pointing out that the Finance Ministry is now considering the formulation of necessary tax provisions for the purpose of assessment and collection of taxes.
Lahiru Pathmalal, CEO, Takas Pvt Ltd , a local e-commerce firm told the Business Times that local e-commerce companies are seeing an increase in penetration and revenue even in times when the general consumer sentiment is down.
e-commerce continues be the only retail channel where there is strong growth being shown, he said adding that, given the low margins, this sector is fiercely competitive and profit making is very difficult.
“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 ill-timed,” he said.
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 Sri Lanka).
“Which means the hotel’s revenue (if making profits) is taxable by the Sri 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 its business. This will affect around 7000 families depending on it by renting out their spare rooms for foreign travellers, another e-commerce firm head said.
The use of text messaging is increasing in Sri Lanka due to high mobile phone penetration at 115 per cent, for the purpose of making an order to buy a product or brand.
A recent survey revealed that marketing through Facebook has influenced 79 per cent of the users to purchase the products. Social media marketing is expanding as well.