By: Staff Writer
March 18, Colombo (LNW): Sri Lanka’s digital services sector is undergoing significant changes following the introduction of new tax policies in the national budget. While these reforms pose challenges, the industry remains committed to fostering innovation and maintaining long-term growth. The Digital Economy Ministry, alongside key stakeholders, is working to ensure that Sri Lanka remains a competitive hub for digital services both regionally and globally.
As one of the nation’s most resilient industries, the digital sector has successfully navigated economic downturns, technological disruptions, and the impact of the COVID-19 pandemic. Despite the challenges posed by the recent tax measures, industry leaders and policymakers are actively exploring ways to minimize negative effects while capitalizing on long-term opportunities.
A key objective of the new taxation framework is to establish a level playing field by ensuring that both local and foreign digital service providers contribute fairly to the economy. In the past, international digital firms operated in Sri Lanka without tax obligations, creating an uneven competitive landscape. The revised policy aims to generate additional revenue and promote fair competition. However, concerns persist regarding its impact on digital exports and freelancers, as increased tax burdens may drive companies to relocate to more favorable tax jurisdictions.
Despite these concerns, Sri Lanka is taking proactive steps to sustain and grow its digital economy. The government is collaborating with industry organizations to introduce supportive measures, including concessionary loan schemes, skill development initiatives, enhancements in digital infrastructure, and the creation of IT parks and co-working spaces to foster entrepreneurship. Additionally, a $50 million Fund-of-Funds is being established to attract global investors, support startups, and encourage intellectual property development.
One of the government’s notable initiatives is the expansion of GovPay, a digital payment platform designed to modernize government transactions, enhance financial transparency, and improve revenue collection. Plans are in place to relaunch QR-based payment systems with minimal merchant fees and to introduce incentives that encourage digital transactions.
Looking ahead, the government and industry leaders have set ambitious targets for 2030, including expanding the digital economy to $15 billion and achieving $5 billion in digital exports. Reaching these milestones requires a balanced approach that ensures fiscal sustainability while fostering an environment conducive to digital innovation and enterprise development.
Digital Economy Deputy Minister Eng. Eranga Weeraratne acknowledged that while the new tax policies demand strategic adjustments, they also provide an opportunity to strengthen the country’s financial position. He emphasized the government’s commitment to reinvesting tax revenue into enhancing connectivity, IT infrastructure, and capacity-building initiatives, with over Rs. 31 billion ($100 million) allocated for digital economic development in 2025.
Industry leaders underscore the importance of collaboration between policymakers and businesses to align regulatory frameworks with industry needs. Federation of IT Industry Sri Lanka (FITIS) Chairman Indika De Zoysa highlighted the sector’s role in driving digital transformation, advocating for policies that support innovation and competitiveness. Similarly, Sri Lanka Association for Software and Services Companies (SLASSCOM) Chairman Nishan Mendis called for a stable, consistent policy environment that balances taxation with economic growth.
Other experts echoed the need for a comprehensive approach. BCS Sri Lanka Chairman Vajeendra S. Kandegamage emphasized the importance of strengthening the IT talent pool, clarifying regulations, and offering incentives for technology-driven enterprises. Meanwhile, Computer Society of Sri Lanka (CSSL) President Heshan Karunaratne stressed the need for holistic strategies that extend beyond taxation, including targeted incentives for IT exports and freelancers.
As discussions between the government and industry stakeholders continue, the focus remains on ensuring that Sri Lanka’s digital economy thrives in the long term. By balancing tax policies with strategic investments and industry support, the country aims to reinforce its position as a leading digital economy. The collaboration of policymakers, businesses, and industry organizations will be crucial in shaping Sri Lanka’s digital future.
