‘Sri Lanka’s digital industry: Resilient, adaptive, and poised for growth amid policy shifts’

The digital services sector in Sri Lanka has witnessed new tax measures introduced in the latest national budget, which mark a significant shift in the industry’s financial landscape. While these measures present challenges, the industry remains steadfast in its commitment to growth, innovation, and resilience. The Ministry of Digital Economy, in collaboration with key industry stakeholders, is actively engaging to ensure that Sri Lanka remains a competitive and attractive hub for digital services, both regionally and globally.

The digital sector has long been one of the most dynamic and future-ready industries in Sri Lanka, withstanding economic crises, global downturns, and disruptive technological shifts. Even during the most difficult periods, such as the COVID-19 pandemic and the economic crisis that followed, the industry remained robust, leveraging innovation and adaptability to sustain growth. The introduction of new tax policies, while impacting stakeholders, is being met with a proactive approach by both the Government and industry leaders to mitigate negative consequences and capitalize on long-term opportunities.

A key aspect of the Government’s fiscal strategy has been to ensure a level playing field by requiring all companies—both local and international—to contribute to the nation’s economy through taxation. Historically, non-domiciled digital service providers had an advantage over local companies, as they were not required to pay taxes for services offered within Sri Lanka. This policy shift is expected to generate additional revenue for the Government while ensuring fairness in the market. However, concerns have been raised regarding the potential implications of increased taxation on digital exports and freelancers, as this may encourage relocation of businesses and banking operations to more tax-friendly jurisdictions. Despite these challenges, the Ministry of Digital Economy, in collaboration with key industry organizations, is focused on implementing measures to sustain and enhance the growth of Sri Lanka’s digital economy. Several strategies are being explored to provide relief and long-term benefits to industry players. These include concessionary loan schemes, investment in skill development, improved digital infrastructure, and the creation of IT parks and co-working spaces to foster innovation and entrepreneurship.