Sri Lanka’s decision to charge value-added tax (VAT) from software companies might push local startups overseas, driving away foreign direct investments (FDIs) from the country, PickMe Founder and Chief Executive Officer (CEO) Jiffry Zulfer said.
Speaking to TV Derana on Saturday (25), he said that the IT sector – which was impacted by Covid-19 and the economic crisis – will be impacted again by the inclusion of VAT to most software companies.
“We consider ourselves a software company because we provide software to our partners.
So that's going to hit us and it's going to be a problem, whereas a foreign company will not have that liability,” Zulfer said.
Moreover, he said that with the VAT increase, investors are going to look at the profits and losses (P&L) of these companies to determine where all the money goes and why they are not profitable.
Zulfer said that since companies providing software solutions from overseas are not included in the VAT, it would push a lot of startups to go overseas and then serve the Sri Lankan market.
“And investors would not look at investing into Sri Lanka,” he added.
Further, he said that the two main bodies representing the IT industry in Sri Lanka – the Federation of Information Technology Industry Sri Lanka (FITIS) and the Sri Lanka Association for Software Services Companies (SLASSCOM) – are looking into having discussions with the Government on the matter, and he expects it will produce positive results.
Along with Budget 2024, the Government decided to increase VAT from 15% to 18% from January 2024 onwards while eliminating almost all VAT exemptions other than for products relating to health, education, and a few essential foods.
“This brings Sri Lanka in line with regional peers, including India and Pakistan, in terms of standard VAT rate. Once the resulting VAT collections enable overall tax targets to be met, it will be possible to phase out other indirect taxes such as the Social Security Contribution Levy (SSCL) and rationalise the Special Commodity Levy (SCL), which are distortive in nature,” the Budget statement by the Ministry of Finance said.