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Digitalization way forward for Lanka – World Bank

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Healthcare workers in Sri Lanka enter data into the DHIS2 COVID-19 surveillance system(Pic courtesy World Bank)

Digitalization is the way forward for Sri Lanka to transform into a technology-based society, says the World Bank.

The WB report said that the Government of Sri Lanka has demonstrated its commitment to accelerate digital transformation. In order to reap the benefits of digital technologies, the country now needs to ensure that access to high-speed and affordable Internet is available to all citizens including in remote areas of the country and across income groups and gender. It also needs to ensure that the right policies, laws, and regulatory frameworks are in place to protect the security, data and rights of all especially the vulnerable.

In early 2020, when the COVID-19 lockdown began, Sri Lanka’s food supply chain was significantly disrupted leaving farmers and consumers to face the adverse effects of the pandemic. Wholesale and retail markets were closed and traders were encouraged to deliver food items directly to doorsteps following strict health guidelines.

However, to sell and deliver food items and agricultural products, small traders were required to register at the Divisional Secretariats (DS), local-level administrative units which serve as the primary citizen delivery points.

But government office closures significantly affected this process. Meanwhile, there was no means to submit and process permit requests electronically.

Now, the Government of Sri Lanka, led by the Information and Communication Technology Agency (ICTA) in collaboration with various stakeholders, has embarked on a highly anticipated digital transformation journey to address such issues.

With support from the World Bank’s Contingency Emergency Response Component (CERC), ICTA is planning to bring services online to 10 selected Divisional Secretariats through piloting the ‘form.gov.lk’ initiative, a cloud-based Software-as-a-Service (SAAS) platform.

The platform will leverage existing infrastructure such as the Lanka Government Cloud (LGC 2.0), the government’s cloud computing infrastructure, and the Lanka Government Network, the government’s private network which connects 860 government offices across the country.

The proposed solution will offer the general public and businesses the capability to fill and submit relevant information and documents digitally without having to visit government offices.

These pilot services will range from civil registrations (births/deaths) and small business registrations to allowing farmers to process police permits for transporting crops.

Once the system is successfully piloted in selected DS offices, the platform can be scaled to other government organizations, reducing travel and building efficiency in service delivery including in areas outside of urban centres and contributing to Sri Lanka’s green recovery.

“Our biggest objective is to build the digital foundation for the government to continue serving all Sri Lankans during a crisis like this. This is just the beginning of our digital transformation journey” says Mehinda Herath, Chief Executive officer of ICTA.

The CERC will also build resilience in public service delivery by enabling government officials to work remotely.

This will be done through the implementation of a government-wide email and collaboration solution and video conferencing facilities; and by enhancing the capacity of the government cloud infrastructure (LGC 2.0) to support more services.

A disaster recovery site will also be established for LGC 2.0 so that critical data is not lost in times of exogenous shocks, including natural disasters such as flooding and cyclones.

“The vision of ICTA is to improve living conditions and livelihoods across Sri Lanka irrespective of geographical locations and other disparities. This will be done through effectively adopting digital technologies and developing the required enabling environment, including the legal framework, basic infrastructure such as unique digital ID and government wide digital connectivity as well as various other aspects that are required to develop the digital economy,” says Prof. Lilith Gamage, Chairman of ICTA.

Transforming Sri Lanka into a technology-based society is one of the key national policy objectives of the country, as highlighted in the President’s manifesto, Vistas of Prosperity and Splendor. This includes the implementation of a “whole-of-government approach” to digital government to improve the delivery of public services to all Sri Lankans; developing the technology industry for jobs and growth; and supporting digital entrepreneurship and growth of a digitally savvy workforce and population.

The government is developing a foundational digital ID system that is backed by biometrics. ICTA together with the Ministry of Justice has also commenced an initiative to establish a country-wide court management system with the aim of improving the efficiency and effectiveness of the judicial system.



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Personal income tax shock dims economic activities

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ECONOMYNEXTSri Lanka’s personal income tax hikes have hit economic activity in the first quarter though despite currency stability helped businesses cut prices, Hemas Holdings, a top consumer goods group has said.As the currency stabilized, as central bank ended contradictory money and exchange policy conflicts, businesses had cut prices. Mainstream economists generally claim that price falls lead to delayed transactions and try to generate positive inflation through money printing, though businesses believe otherwise.

“The market witnessed price reductions and promotional trade schemes to stimulate consumption,” Hemas Holding told shareholders in the March quarterly statement.

“However, changes made to the personal income tax structure severely impacted modern trade sales volumes as consumers rationalised their purchases under reduced disposable income levels.”

Sri Lanka hiked personal income tax rates in 2023. Value added taxes were raised to 15 percent from 8 percent last year. Another 2.5 percent cascading tax was imposed on top of VAT, the effect of which was estimated to be around 4.5 or more through the cascading effect.

While value added tax allows the government to get tax revenues after citizens make transactions and getting the economy to work, based on best decisions needed to drive the economy to satisfy real needs, income tax kills economic decisions and transfers money to state actors, analysts say.

Net gains on income tax therefore comes at a cost of lost value added tax as well as killed real economic activities which would otherwise have been based on decisions of those who earned the money.

UK also almost doubled VAT in 1979, also to 15 percent, cut the base income tax rate and widened thresholds above inflation to give choice to individuals, amid criticism from Keynesian style or mainstream economists to recover the economy, after two back-to-back IMF programs failed to deliver concrete results, analysts point out.At Hemas Holdings, group revenues went up 52.6 percent to 32 billion rupees in the March 2023 quarter from year earlier amid price inflation as the rupee fell, and cost of sales went up 45.1 percent to 22.2 billion rupees, allowing the group to boost gross profits 72 percent to 9.8 billion rupees, interim accounts showed.

However, administration costs went up 54 percent, selling and distribution costs went up 36 percent, and finance costs went up to 1.3 billion rupees. Profit after tax was flat at 1.06 billion rupees.Sri Lanka’s central bank stabilized the rupee in the second half of 2022 after the rupee collapsed from 200 to 360 to from two years of money printing and also removed a surrender rule in March allowing the exchange rate appreciate.

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“While the modern trade channels witnessed a slow down due to the adverse impact of the tax reforms and high cost of credit on the middle-class urban population, the general trade channels experienced significant growth and increased foot fall,” Hemas told shareholders.

“The decline in global commodity prices in the second half of the year, enabled the business to make price reductions across the portfolio.

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Hemas is also has operations in Bangladesh where the central bank is also buying up government securities with tenors as long at 20 years to mis-target the interest rate, triggering forex shortages and depreciating the Taka, according to analysts who study the country.

Inflation had hit 9.3 percent in Bangladesh by March.

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Mainstream economists mis-target rates to boost growth known as either monetary stimulus or bridging an output gap, though the effort result in instability and economic contractions.

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