Hopes, concerns, and thoughts for tech: The 2019 Sri Lankan budget

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We’re typically used to being anxious around November. That’s when we usually hear the national budget being presented in Parliament. Of course, last November we had a lot more to be anxious about. With a political crisis and what not. Thus, it was only yesterday that we officially had the budget for 2019 presented in Parliament. And a common theme of this year’s budget has been the Enterprise Sri Lanka Initiative. So what do the 2019 Sri Lankan Budget proposals hold for the tech industry? Here’s a detailed list.

Loans for entrepreneurs and simplifying funding for startups

During the budget speech, Minister of Finance Mangala Samaraweera stated, “in the last few months, more than 30,000 entrepreneurs have benefitted from the “Enterprise Sri Lanka” Loan Schemes, with almost Rs. 60,000 Mn. being disbursed.” Yet, he admitted that small entrepreneurs had the challenge of providing collateral as required by banks to receive these loans.

Therefore, it’s been proposed to allocate Rs. 500 million to provide guarantees to banks. Additionally, it’s also been proposed to have a hotline set up for any complaints regarding these loans. And it’s also been proposed for ministries and government departments to, “earmark at least 10% of the value of procurement to Sri Lankan SMEs.”

2019 Sri Lankan Budget | Enterprise Sri Lanka
Having launched last year, Enterprise Sri Lanka loans have been criticized as challenging to obtain. The 2019 budget proposals include ideas meant to make it easier (Image credits: LankaNewsWeb.Net)

The budget also calls government institutions such as such as ITI, ICTA, EDB, and universities, along with larger private sector companies to support startups. But besides loans, the minister also stated that legislation to introduce Limited Liability Partnerships this year. This is a proposal, which SLASSCOM has also called for to eliminate double taxation.

The taxes on online services

Hidden under the technical notes of the 2019 Sri Lankan budget proposal, is an amendment to the National Building Tax (NBT).  This amendment is the imposition of a 3.5% NBT on payments by debit and credit cards to purchase goods and services from foreign companies. This would be effective from the 1st of June 2019.

2019 Sri Lankan Budget | Uber Eats
And with a 3.5% NBT if you pay by card as per the 2019 budget proposals (Image credits: Uber Eats)

During his speech, Minister Mangala Samaraweera stated that this proposal would, “help address taxation of off-shore digital services.” Now you might not think of this too much. But this tax can apply to a variety of services that you might use every day. An example being ordering a cheese kottu from Pilawoos through Uber Eats.

Of course, there are some instances where local companies have offerings on par with those of international companies. An example being PickMe food, which can get you that cheese kottu from Pilawoos without the NBT. But this is not always the case. Yet, one could also argue that with Sri Lanka’s rising debt, it’s only natural for the government to look at taxing online services being used by the populace. 

Modernizing public transportation and infrastructure

It’s common knowledge that Sri Lankan traffic is terrible. It’s also common knowledge that Sri Lankan public transportation needs an overhaul. And when presenting the 2019 Sri Lankan budget proposals, Minister Mangala Samaraweera stated, “Our public transport system needs urgent attention, with investments made in a more integrated manner.”

As such, the 2019 Sri Lankan budget proposal includes Rs. 1000 million allocated for the “Sahasara” Bus Modernization Program. The goal of this program is to modernize every aspect of bus services across the country over the next 5 years. As part of this program, prepaid fare cards and electronic tracking of buses are to be introduced in the Central and Western Provinces in the coming months.

2019 Sri Lankan Budget | Sri Lanka | Bus
The 2019 budget proposals call for a host of technological upgrades to modernize how the bus transportation system works (Image credits: TheTRVLBlog)

This electronic tracking would mean commuters can get information about buses through their phones. Additionally, it has also been proposed to invest Rs. 1,300 million in setting up a Bus Operation Control Centre and multimodal passenger terminals. The goal of this operational control center is to improve the efficiency of both SLTB and private bus services.

But busses are not the only area of transportation touched by the Sri Lankan budget proposals. The budget proposals include a concessionary loan for electric tuks and small cars called the “Mini Taxi-Electric Three Wheeler.” The government bearing 75% of the interest of this loan and requires the existing tuk is disposed of.

Minister Mangala Samaraweera also stated that Rs. 5000 million was allocated for the Colombo Light Rail Transit (LRT) network. Work on this is expected to commence in 2019 with the first line connecting Malabe to Fort. Of course, it should be noted that work on the LRT was to kick off last year.

Helping Sri Lankan companies innovate and enter new markets

Another set of proposals in the 2019 Sri Lankan budget are aimed towards helping Sri Lankan companies go global. Among these is the continued support of programs launched with the 2018 budget. Therefore, the 2019 budget has proposed to allocate Rs. 400 million for the Export Market Access Program and Rs. 250 million for the National Export Strategy.

As part of the National Export Strategy, the Island of Ingenuity campaign was launched. The purpose of the campaign is to create a strong image of the local IT industry. The end result is to help Sri Lankan IT companies create a better impression and expand globally.

2019 Sri Lankan Budget | Island of Ingenuity
The 2019 budget proposals call for increased support for the National Export Strategy. Under this is the Island of Ingenuity campaign by the local tech industry (Image credits: G Adventures)

And based on the budget speech, the government is very keen for local companies to enter the Indian and Chinese markets. To that end, it’s been proposed to allocate Rs. 50 million to establish Trade Houses to facilitate this. The purpose of these trade houses being to offer support in securing distribution networks, buyer linkages, and more for Sri Lankan companies entering these markets.

Additionally, to help local companies develop innovative products, it has been proposed to allocate Rs. 50 million for the Enterprise Innovation Program.  The program would be run for a period of 3 years. During that time, its goal would be to provide grants to help Sri Lankan companies with proof of concept, prototyping, R&D and technology adoption.

Introducing technology into food production and storage

The 2019 Sri Lankan Budget also called for the adoption of modern technologies by industries involved in food production. As such, the budget has allocated Rs. 250 Million to introduce Agriculture Technology Demonstration Parks to 5 Districts – Hambantota, Kurunegala, Puttalam, Ratnapura, and Kegalle. The purpose of this initiative is to help introduce new technologies and crops of higher value to farmers.

Alongside food production, the budget also called for the introduction of modern climate controlled warehouses for food storage. For this purpose, it’s been proposed to allocate Rs. 400 million to set up such warehouses in Dambulla, Katunayake, Embilipitiya, Jaffna, and Keppetipola. And the private sector would be invited to manage these warehouses.

2019 Sri Lankan Budget | SenzAgro | Farming | IoT
The 2019 budget proposals call for modern technologies to be utilized in food production and storage. These are areas local companies have been active in as well (Image credits: SenzAgro)

These are areas, which local companies have also made their mark. One example being SenzAgro, which utilizes IoT to help farmers tackle the challenges of water shortages, limited lands, and increasing costs. Similarly, CodeGen too has explored vertical farming with AI being used to control the climate and maximize crop yield.

Tax concessions to encourage an inclusive workforce

When it comes to taxes, local IT companies had a reason to celebrate. It’s been proposed that the 2019 Sri Lankan Budget would remove the minimum employment requirement for IT companies, to be eligible for the special additional deduction of 35% on the salary expenses incurred.

Yet, during the budget speech, Minister Mangala Samaraweera stated, “women constitute only about 30% of the labor force.” Having more women active in the workforce helps not just the tech industry but everyone. As such, the 2019 Sri Lankan budget has multiple proposals to help address this.

2019 Sri Lankan budget
The 2019 budget proposals include ideas to help more women be active in the workforce. Though in the case of tech, there’s a lot more that can and should be done (Image credits: PwC)

One such proposal is the creation of child-care facilities at commercial establishments and schools. Private businesses can obtain funding for such facilities through the “Rekawarana” Concessionary Loan Schemes. Furthermore, companies can also obtain a tax concession for offering maternity leave for new mothers, which would apply for a period of 5 years.

The Minister also requested Parliament to amend labor laws to allow part-time, flexible hours, home-working to allow more women to work. He also proposed, “a sequenced approach to enable greater participation of women in boards of listed companies. The Securities and Exchange Commission will be encouraged to implement this proposal.”

At the end of the day, creating an inclusive workforce is essential for Sri Lanka to develop as a nation. As such, it’s also encouraging to see budget proposals addressing the inclusion of people with disabilities. The 2019 Sri Lankan budget is also offering companies that hire 5 people with disabilities a salary subsidy for a period of 24 months. 

2019 Sri Lankan budget | Disabled persons
The 2019 budget proposals give companies a salary subsidy for hiring 5 or more disabled persons (Image credits: Real Wealth Business)

Additionally, the budget has also proposed the removal of the International Telecommunication Levy for families of migrant workers. A positive step indeed. Yet, one can also argue that this is too little too late. With the rise of cheap data calls over WhatsApp, Viber, and Facebook, who calls their loved ones in another country over mobile?

Bringing new educational opportunities

One of the most popular proposals in the 2019 Sri Lankan budget was under the topic of education. This was Rs. 500 million proposed to be allocated for the Scholarship for Educational Excellence – SEE Fund. The purpose of this scholarship would be to allow top performers at the A-Level exams to pursue their higher studies. This would be at top universities, such as Harvard, MIT, Oxford, Cambridge, etc.

These students would then have to return to Sri Lanka and work for a period of 15 years. Yet, during his speech, Minister Mangala Samaraweera also stated, “only around 30,000 students enter universities from over 300,000 who sit for the ‘A’ Levels.” To address this, it’s been proposed in the 2019 Sri Lankan budget to allocate Rs. 200 million to offer a loan up with zero interest for students to pursue higher education.

2019 Sri Lankan Budget
The SEE Fund proposed in the 2019 budget aims to give top performers at the A-level exams the chance to pursue higher education at top universities of their choice (Image credits: Daily News)

With the rapid pace of technological change, an educated workforce is essential. Not just for the tech industry but every industry. Yet, the budget has specifically included proposals to encourage more workers in the tech industry.

As such, it has been proposed to allocate Rs. 300 million to expand the “IT Initiative”. The goal of this initiative is to give internships to unemployed graduates at IT-BPM and KPO firms. It was also proposed that the Government would bear up to Rs. 25,000 of their salaries.

Furthermore, it has been proposed to allocate Rs. 50 million for a “Science at Work” Challenge. The purpose of this challenge is to address the problem of research by Sri Lankan universities not being applied by any commercial solutions. Thus, the challenge aims to encourage the research into solutions that would then be implemented with the allocated finances.

Regulations meet online tourism bookings

Online bookings are disrupting the tourism industry. For proof, one only needs to look at the example of Airbnb. It’s created an informal network of easily accessible rooms everywhere. Even in Sri Lanka, which the government has recognized and has decided to step in to introduce new regulations.

The 2019 Sri Lankan budget proposals stated that as of 1st April 2020, any online booking/reservation website can register hotels and other establishments only if they’re registered with the Sri Lanka Tourism Development Authority. This applies to any establishments offering more than 5 rooms per property.

2019 Sri Lankan Budget | Airbnb | Tourism
As per the budget proposals, sites like Airbnb can only register establishments with 5 or more rooms per property if these establishments are registered with the SLTDA (Image credits: Forbes)

To be fair, Minister Mangala Samaraweera also stated, “The registration process of the SLTDA will be further simplified to facilitate this.” But in our experience, simplicity and the Sri Lankan government are never in the same room. It’s akin to playing a football match with a cricket bat. Everyone knows that it just doesn’t happen.

Nonetheless, Rs. 800 million has been allocated to digitize government services. Besides being known for poor security, our experience with the e-local government service and open data initiative, we’re skeptical.

Sri Lanka e-local government homepage
Our experience with previous attempts at digitization by the government have us skeptical about the proposed Rs. 800 million to continue these efforts

It was only at the start of this year, when we saw the police website to find lost phones, that we saw a government digital service that worked. Its design can be improved considerably. But it works! And that’s a victory with the government’s poor track record.

So how does the 2019 sri lankan budget fare?

It’s not perfect. The proposals include taxes that will deter digital payments and the consumption of online services. Furthermore, one can also argue that it introduces unnecessary regulations with regards to online bookings for the tourism industry. Yet, when taken as a whole, the 2019 Sri Lankan budget has some sound proposals.

The best examples of these ideas are found regarding education. But even in other areas, there are impressive ideas such as regarding the reforms to public transportation. Not to mention the proposals to help encourage startups to grow and expand into new markets.

If the ideas are good then why should we stop implementing them just because another government comes into power?

Of course, critics like Namal Rajapakse can argue that while these are good ideas, it’s questionable whether the government can implement all of these in the time it has prior to the elections. Granted the question of execution is a valid one. However, if an idea is good then there’s no reason for it to be discarded just because the government doing it was voted out.

Furthermore, the question of, “Can you actually do this?” is one that has plagued every Sri Lankan government.  Even the previous one, which actually pulled off ambitious and controversial projects that had no real value. And it’s no different with this government.

2019 Sri Lankan Budget | Digana Riots
The victims of the Digana riots yet to get their compensation, reminds us how slowly the wheels of Sri Lankan bureaucracy turn for any idea to be implemented smoothly (Image credits: Reuters/Dinuka Liyanawatte)

The 2019 budget is not perfect but it has good ideas. Yet, it’s easy for the execution of these ideas to go wrong. This is in no small part due to the mess that is Sri Lankan bureaucracy. Ultimately, at the end of the day, good ideas are cheap. Execution is where it counts.

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