Sri Lanka E-commerce Industry and Proposed Taxation
Sri Lanka in recent years has seen a massive growth in E-commerce companies operating within the island and generating great value and revenue. The e-commerce industry of today has become a far cry from the days of where Kapruka, founded in 2003 was the only dominant player. The technological advancements in recent years have established many dominant players in the e-commerce arena forming a diverse environment.
Many startup companies have also increasingly begun to showcase tremendous growth, while the growth and penetration of social media has also created immense opportunities for entrepreneurs. Some of the companies that have thrived in the internet based model include companies such as PickMe, Takas.lk, 24/7 Techies.com, Live room, Erbenlab, Kadira.io and PayMedia. Also, a number of giants in the global arena such as Uber and Airbnb have entered the Sri Lankan e-commerce industry. These have generated massive amounts of revenue within a relatively short amount of time and companies such as PickMe have posted revenue figures close to 2 Billion Rupees and expect growth up to 6 Billion rupees while also heading towards an IPO.
Sri Lankan division of the Jones Lang LaSalle, an American professional services and investment management company, commented that not only do things look good for physical retail sector in the country but also for online retail. The comments came from Mr. Gagan Singh, Chairperson, JLL Sri Lanka. He also added that, unlike many countries in which e-commerce only developed as a third retail option at a much slower pace; the Sri Lankan e-commerce industry is growing rapidly.
These comments seem to validate the figures by the Central Bank of Sri Lanka for 2015. It reported a 21.1% increase in IT related activities, compared to the 9.3% in 2014. However, as with any thriving industry it has grabbed the attention of the taxation mechanisms of the country.
The former Finance Minister, Ravi Karunanayake first revealed that the Government is planning to introduce a platform to make taxation possible within the e-commerce arena. He also revealed that the objective of the government is to try and make the companies to maintain accounts at local banks. It was expressed that entities such as the Tourist Hotels Association of Sri Lanka (THASL) has requested such a platform to be put in place, due to companies such as Airbnb entering the Sri Lankan market.
The reaction to the idea of taxation by the Government has been uniform for the most part. Entrepreneurs have spoken against this and instead suggested that the Government must first concentrate on providing much needed support in terms of policy making and legislation to grow in the industry. One of the key lobbying points has been to allow companies such as PayPal to enter Sri Lanka, which allows for greater growth of Sri Lankan companies.
According to a recent article carried out by Readme; a prominent online media outlet in Sri Lanka, there are plans to form an e-commerce based business collective. It also shares many of the concerns of e-commerce businesses who feel that they are being targeted due to the Government only having a dialogue with existing larger businesses who are threatened by the newer e-commerce businesses. They suggested a way to move forward would be to actively engage the e-commerce businesses and to reach a compromise, especially since they are not against a tax as long as it’s reasonable.
Speaking to Sunday Times, the CEO of Takas Pvt Ltd, Mr. Lahiru Pathmalal has commented tax holidays are what is needed for e-commerce companies. He also stated that taxing of travel related booking engines is ill timed. He pointed out that if companies such as Airbnb and Booking.com were to be taxed without proper consultation, they are likely to leave Sri Lanka, which would directly affect over 7000 families who are now relying on these as sources of income.
The suggested platform is to be developed and hosted by ICTA and will monitor transactions especially conducted through sources such as Amazon and eBay. The process is expected to be monitored by the treasury.
Sri Lanka showcases tremendous growth potential in the e-commerce arena, adding to an already diverse eco system. There is growing interest on investment coming from many sources to Sri Lanka and with a sustained support system the Sri Lankan e-commerce will be able to compete internationally. However, the taxation platform, despite having merits of its own, could derail the industry as it is still in the infancy stage.
The way forward will rely heavily on initiating a dialogue with the stakeholders of the industry and reaching a compromise between taxation levels and growth incentives. Any other cause of action could potentially mean backlash for the Government as many families and newer jobs that are created due to the booming of the e-commerce industry, could be put in jeopardy.
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