Hon. (Prof.) Anil Jayantha

¶ 01 Hon. Speaker, let me clarify this. We all know the situation under the IMF programme. Initially there was a 30% tax on export services. The Government’s revenue challenge is about revenue measures. We too would prefer if we could remove all taxes. We negotiated and did the maximum we could. Likewise, we negotiated and fully removed some items. We completely removed the Imputed Rental Income Tax (IRIT). We also discussed tax concessions. The reason to bring the rate applicable to export services down to 15% is based on a rationale. The principles of taxation must be clear. For fairness, everyone in Sri Lanka must pay taxes — individuals and companies — subject to a tax‑free threshold. The taxpayer must be a resident person. A resident person is taxed on income earned in or derived from Sri Lanka or abroad. The tax being imposed here concerns services exported to foreign countries. Narrowly labelling this as digital creates confusion. This is taxation on the export of services. In international transactions today there is a trend of tax evasion and avoidance. The OECD has reported on this and proposed a Global Minimum Tax. We considered those aspects in bringing this proposal.

¶ 02 If we have income, we must pay tax subject to the applicable thresholds. We all know the country can only recover if we do so. Then it becomes the taxpayer’s duty to declare income and pay the relevant tax rate. However, taking the export services sector into account, 15% is applied. For example, consider two individuals. One earns Rs. 500,000 within Sri Lanka. The other also earns Rs. 500,000, part domestically and part from digital services — that is, from export of services. If someone earns Rs. 500,000 solely domestically, that person is taxable and must pay based on the slabs: after the monthly tax‑free amount of Rs. 150,000, the next Rs. 83,000 at 6%, the next Rs. 41,000 at 18%, then 24%, 30% and 36% as applicable. Whether we like it or not, that is the current fair structure. But a person exporting services gets a specific benefit: from the Rs. 500,000, first Rs. 150,000 is tax‑free, the next Rs. 83,000 at 6%, and the balance attributable to export services is taxed at 15%. Thus there is a benefit. To claim that benefit under self‑assessment, the person must prove the income is from export of services; therefore, routing through banks is required.

¶ 03 If some liable persons do not pay tax, that is a separate matter. We have not imposed an unfair tax. We have acted to preserve fairness and to adapt to global trends in cross‑border transactions. There is no unfair imposition here.