SLASSCOM – Lanka Business Online

In light of the recent communication regarding the removal of the exemption for export of services, we, the Sri Lanka Software and Services Companies Association (SLASSCOM), Federation of Information Technology Industries Sri Lanka (FITIS), BCS Sri Lanka
Section (BCS) and Computer Society of Sri Lanka (CSSL) share their collective thoughts and suggestions.

Resilience and Industry Contribution

Our members include leading multinationals and local startups exporting IT and BPM services worldwide. Despite recent challenges, our industry continues to grow, with an estimated $2 billion in export revenue in 2023 and over 144,000 IT-BPM professionals employed.

Global companies such as EY GDS, Virtusa and HSBC have reaffirmed their
commitment to Sri Lanka, contributing significantly to our economy.

Compared to regional countries, we will have one of the highest tax brackets and this, for an emerging industry, will be a significant downside and will remove one of the strong incentives that we as an industry have promoted. Some of our members have also told us that they will now be forced to reconsider their expansion plans, which is worrying.

Our businesses are already burdened with high staff costs, especially for employees subject to the 36% personal income tax rate.

To combat brain drain and retain top talent, our companies are forced to raise wages. Our industry is unique in its high percentage of added value and rapid growth potential.

It is also unique in that moving to a lower-tax jurisdiction is much easier. We believe that the very marginal addition to government revenue from this proposal will be quickly offset by exits, and net revenue will be reduced, achieving the polar opposite effect.

We are concerned that increased operating costs resulting from new taxes could hinder innovation and competitiveness. Sri Lankan companies may find it difficult to compete internationally with countries that use tax incentives, risking loss of revenue and market share.

New taxes could reduce the ability of businesses to invest in training, which would impact employment opportunities, especially for disadvantaged groups.

Additional taxes on the knowledge sector could slow down economic recovery and reduce its contribution to the national economy. Taxation
housing will deepen the outflow of key talent, which will hinder the development of the sector.

Moreover, these changes could seriously impact the country’s Digital Economy Strategy 2030, which aims to make Sri Lanka a leading digital economy in the region.

This strategy relies heavily on the IT and BPM sectors as the main drivers of innovation and growth.

Discouraging these industries through higher taxes could undermine the vision and goals of this long-term strategic plan, potentially resulting in lost opportunities and reduced global competitiveness.

We propose continuing the tax break until 2026 to allow the industry to recover and ensure sustainable growth. Phased implementation of new tax measures and the provision of compensation for training and internship costs would help mitigate the impact.

It is also essential to establish ongoing consultations with industry representatives in order to develop a sustainable tax policy.

SLASSCOM, FITIS, BCS Sri Lanka Chapter and CSSL remain committed to supporting the growth and development of the knowledge and innovation sector in Sri Lanka. We believe that careful policy adjustments can achieve economic stability while supporting a thriving, innovative industry.