BPO sector urges tax act rethink

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By 2017-08-13

By Ishara Gamage

Sri Lanka's frustrated IT and Business Process Outsourcing (BPO) sector stakeholders and National Chamber of Exporters (NCE) have urged the government to not to tax IT-BPO industry as suggested by the proposed Inland Revenue (IR) Act.
"If they (the government) imposed a new tax liability on this sector, the industry participants may move to another country like Bangladesh," an industry veteran said.

He also said that due to this tax policy uncertainty, Sri Lanka's HSBC BPO Centre is threatening to leave the country.
According to Central Bank, the BPO industry is an emerging sector in our export economy, making it the country's fifth largest export revenue earner (US$ 850 million) in year 2015.The industry leaders expect this number to rise to US$ 5 billion by 2022. Sri Lanka's IT-BPO industry in 2015 employed around 80,000 professionals, with a goal of reaching 200,000 by 2020. The vast majority of these jobs are based in Colombo, which was ranked 16th among outsourcing destinations globally in 2016.
The proposed Inland Revenue Act has suggested imposing a new 14% income tax liability on the BPO industry.

The BPO industry in Sri Lanka currently enjoys various tax exemptions including zero income tax liability.
Speaking exclusively to the Ceylon FT, National Chamber of Exporters (NCE) of Sri Lanka President Ramal G. Jasinghe on Friday said that they have already lobbied to the government to avoid the proposed export unfriendly tax reforms.
"We have already submitted our proposed IR Act observations to the government and at the moment they have responded positively," he said.

The NCE also lobbied the government to not remove (as suggested) existing triple tax deductions available for their Research and Development (R&D) activities, as the results might come after two-three years.

The NCE also urged the government to accelerate the completion of the steps to establish the proposed Sri Lanka Export Import Bank and also introduce a properly structured national export oriented skills development strategy. They also said that proposed removal of import as well as export cess will have a terrible disadvantage on all the local industries.

"We think, current Middle East (especially Qatar) related crisis might encourage Sri Lankans to come back to their mother country and start their own export oriented businesses. So, we need a proper skills development strategy to train them," Jasinghe said.
Sri Lanka's proposed IR Act might clash with the country's most ambitious 8 million euro, European Union (EU) funded National Export Strategy (NES), export sector stakeholders earlier told Ceylon FT.

"As Sri Lanka's main export sector chamber, we have several issues with the proposed Inland Revenue Act. Without taking the trouble to consult us they (Government) have drafted the Bill," Ramal G. Jasinghe said early July.

Meanwhile, speaking to the Ceylon FT, Export Development Board Chairperson and Chief Executive, Indira Malwatte, also said that the new Inland Revenue Act might negatively impact the country's ICT and BPO sector.
However, Sri Lanka's ambitious National Export Strategy plans to earn US$ 18 billion from exports (currently US$ 11 billion) within next three years through solid private and public sector collaboration.

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