Sri Lanka’s IT industry’s growth amidst challenges
Sri Lanka’s Information Technology (IT) industry has experienced significant growth, with revenues increasing from approximately US$750 million, 10 years ago, to between $1.5 to 2 billion, Director and Co-founder of Creative Software Sushena Ranatunga told The Sunday Times Business.
This expansion underscores the sector’s resilience and potential as a key contributor to the national economy, a pioneer in the IT industry, he added.
Recent fiscal reforms have introduced new tax measures impacting the digital services sector. While these policies aim to bolster government revenue, they present challenges for IT companies striving to maintain competitiveness. The Ministry of Digital Economy, in collaboration with industry stakeholders, is actively engaging to ensure that Sri Lanka remains an attractive hub for digital services amidst these changes, he pointed out.
A notable concern is the regulatory divergence between Sri Lanka’s mainland and the Port City Colombo Special Economic Zone (SEZ). Port City Colombo offers substantial incentives, including up to 25-year tax holidays, exemptions from indirect taxes, and streamlined business operations under the Colombo Port City Economic Commission Act, Mr. Ranatunge elaborated.
These advantages create an uneven playing field, potentially disadvantaging IT enterprises operating outside the SEZ, he said.
The COVID-19 crisis prompted the development of an informal IT sector, characterised by freelance experts and small-sized companies. While it is a component of economic activity, its informal nature renders it hard to quantify and incorporate into the formal economy.
The recent tax hikes may exacerbate challenges for these entities, increasing the likelihood of tax defaults and hindering their growth prospects.
Data on the exact number of IT product companies in Sri Lanka is limited. But creating such businesses is crucial to diversify the industry away from services.
Strategic IPR laws are important to safeguard innovations and attract investments in the IT sector. Sri Lanka has brought its commercial legislation in line with international standards, including intellectual property rights treaties, electronic transactions, and computer crime treaties.
Sri Lanka’s IT industry is at a crossroads, with growth that is phenomenal and challenges still in their infancy. Policy inconsistencies need to be addressed.
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