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Controversy over proposals to tax foreign e-commerce companies
View(s):Proposals on enforcing a tax on foreign companies that benefit from doing e-commerce business in Sri Lanka stirred some controversy this week after the International Monetary Fund (IMF) denied it had any discussions on this issue with the government.
Proposals to tax the services of e-commerce websites like booking.com were explored in two budgets in the recent past as a tax revenue stream but were not implemented.
This week the IMF issued a statement saying it has had no discussions with the government of Sri Lanka on a digital services tax which is defined as a tax on services provided to another country by e-commerce websites.
The IMF denial appeared to have been prompted by an ‘open letter’ from an independent body to the IMF Managing Director Kristalina Georgieva expressing its alarm that the Sri Lankan Ministry of Finance is now under severe pressure from the IMF to drop plans for a digital service tax.
“It is unacceptable that a small and distressed country such as Sri Lanka is being pushed to give up its sovereign right to introduce a tax policy, digital taxation, at a time when it is most needed, especially so before there is a ratified global agreement providing for alternatives. We urge the IMF to stop pressuring Sri Lanka to withdraw its digital services tax proposal,” said the July 3 letter from the Independent Commission for the Reform of International Corporate Taxation (ICRICT) in which eminent economist Joseph E. Stiglitz is a co-chair.
For several years Sri Lanka has been contemplating a tax on global e-commerce companies which sell goods and services to Sri Lanka like travel websites and others like amazon.com.
“The challenge is in coming up with a tax which e-commerce companies are willing to pay and not exorbitant. Sri Lanka is a blimp in the ocean for these companies and if the taxes are high, they would not do business with Sri Lanka. So balancing the interests of the service provider and the need of the government to enforce a tax is the challenge,” an IT specialist said, adding that these are giant companies which may find it unattractive to do business in Sri Lanka if they are heavily taxed.
Local hotels have in the past complained that while they have to pay taxes on bookings through these travel platforms, the websites don’t pay any taxes to the local exchequer, concerns which led to the budget proposals which were, however, not implemented.
ICRICT said that early this year, the government sought to increase its fiscal revenues by considering the adoption of a Digital Service Tax, to tax the digital multinationals which are making profits through sales to customers in Sri Lanka. “We believe that developing countries must retain their sovereign rights to set domestic tax and fiscal policies while awaiting a more comprehensive reform based on a fairer reallocation of taxing rights,” it said.
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