Calls for equitable taxation for digital economy
Tax professionals have called on policymakers to look internationally and implement equitable taxation mechanisms for digital services. The proposed taxes should seek to carve out its approach to harnessing the digital economy’s potential while ensuring fair play and revenue generation for its coffers. Policy leadership has been provided by the Indians and the OECD.
The topic of digital taxation, which has simmered in policy discussions for years, is gaining renewed attention. “We’ve been talking a lot about extending the tax net to online transactions or e-commerce transactions,” shared KMPG Principal Suresh Perera, a key participant in the recent discourse on digital taxation in Sri Lanka, during a comprehensive discussion on the subject. Despite previous budget proposals hinting at taxation measures for digital transactions, implementation has remained elusive.
Perera was speaking on KPMG’s webinar on Digital Taxation on April 5. The global digital economy, encompassing everything from e-commerce and online travel bookings to streaming services and cloud storage, presents an untapped revenue source. As Perera points out, “everyone should be paying a fair share when they’re carrying on businesses,” underlining the principle of equity that should guide taxation policies.
Sri Lanka’s hesitation is not unique, but its inaction contrasts starkly with moves by countries like India, which has robustly taxed digital services through mechanisms like the Equalization Levy and significant economic presence criteria. This divergence underscores a global landscape where unilateral actions prevail, despite overarching frameworks proposed by bodies like the OECD aiming for a multilateral consensus. The absence of a concrete taxation framework for digital services in Sri Lanka not only represents lost revenue opportunities but also risks creating an uneven playing field between local and foreign digital service providers. The current tax statutes, without specific provisions for the digital domain, fail to capture the full spectrum of digital transactions that cross borders with ease, sidestepping traditional taxation models based on physical presence.
“The existing brick and mortar model has been looking for the existence of a permanent establishment. We haven’t done anything as such,” Perera said, signalling the gap between existing tax laws and the reality of the digital economy. This gap highlights the critical need for Sri Lanka to either introduce new legislation or amend existing laws to encompass digital services adequately.
As Sri Lanka mulls over its approach, the debate underscores a broader global challenge: how to fairly tax a sector that defies traditional boundaries and definitions. The discussions in Sri Lanka, reflective of a worldwide conundrum, suggest an urgent need for policies that not only capture the essence of digital transactions but also ensure that digital giants contribute their fair share to the economies they benefit from.
As the country looks to future budgets and legislative sessions, the calls for equitable digital taxation grow louder, urging policymakers to move from deliberation to action. In a world increasingly driven by digital interactions, Sri Lanka’s next steps could set a precedent for how smaller economies navigate the complexities of taxing the digital frontier. (TP)
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