The International Monetary Fund (IMF) is pressuring Sri Lanka to rejoin the Organisation for Economic Cooperation and Development (OECD)’s tax deal on multinational enterprises, dropping the Government’s proposed Digital Service Tax (DST) on e-businesses, The Financial Times reports.
Accordingly, two sources have revealed to The Financial Times that Sri Lanka is coming under pressure from the IMF to drop the DST plan and sign up for the OECD’s deal.
The IMF’s position is that “this new tax would defer foreign direct investment (FDI) to Sri Lanka”, an official within the Sri Lankan Government has informed The Financial Times.
Sri Lanka originally took part in OECD negotiations to ensure that multinational enterprises will be subject to a minimum 15% tax rate from 2023, but in 2021, the Government decided against endorsing the political agreement along with Pakistan, Kenya, and Nigeria.
Representatives of more than 130 countries have gathered at the OECD’s Paris headquarters for three days of talks on applying a key part of a groundbreaking tax deal that has been beset with delays and problems over ratification.
The Financial Times said that the agenda of the meeting is to change global law that would allow countries to scrap the current patchwork of national levies on tech giants such as Google, Facebook, and Amazon.
Officials also hope a ban on the so-called DST that is set to expire at the start of 2024 can be extended until a consensus on global reform is reached. Without an extension, trade wars are likely to ensue as countries go it alone in their attempts to recover more revenue from the world’s 100 largest multinationals that are covered by the deal.
In a recent discussion held by the Select Committee on Ease of Doing Business Index last month, urgent steps were identified to regulate internet-based business activities and ensure tax compliance among companies involved.
The committee proposed the introduction of a legal framework designed to regulate online businesses. This framework would encompass provisions for a digital service tax, which aims to ensure fair taxation of online transactions.
By implementing this tax, the Government sought to not only promote tax compliance among foreign companies but also encourage more internet-based businesses to invest and operate within the country.