President Ranil Wickremesinghe reassured the IT sector in Sri Lanka that the proposed VAT increase, which could reach 18%, will not pose a significant burden to the industry’s growth. Addressing Parliament during the 2024 Budget debate, the President highlighted that the IT sector’s export-oriented nature mitigates the impact of the VAT increase.
He noted that the export of IT services is considered a zero-rated supply, exempting it from VAT. Additionally, IT services provided to foreign clients and paid in foreign currency are exempt from income tax.
While acknowledging concerns among some industry stakeholders, the President emphasized that the VAT increase applies equally to all sectors, emphasizing fairness and equity. He also mentioned that India, a major IT hub, also imposes a 18% Goods and Services Tax (GST) on IT services.
To address industry concerns, the President outlined plans to allocate Rs. 1.5 billion specifically for AI research and another Rs. 8 billion for overall technological research. He indicated that the IT sector could potentially receive up to Rs. 3.5 billion from these research initiatives.
Furthermore, the President underscored the government’s commitment to supporting the IT sector’s expansion. He expressed optimism about achieving significant digitalization advancements in the next two to three years, leveraging India’s experience and building upon it to propel Sri Lanka’s digital sector to new heights.
In conclusion, President Wickremesinghe assured the IT sector that, while the VAT increase is necessary, the government is committed to mitigating its impact and fostering the industry’s continued growth. He emphasized the government’s support for research and innovation, signaling its dedication to nurturing Sri Lanka’s burgeoning IT landscape.