The Sri Lankan Government Wants To Regulate E-Commerce

567

Recently, it was announced that the Sri Lankan government wants to introduce regulations for the local E-Commerce industry. Now Sri Lanka is a country that relies on exporting various goods and services to generate income. Among this income is what we as a country has managed to propagate through the Information and Communication Technology (ICT) sector. In fact, we had a look at the annual report published in 2015 by the Central Bank of Sri Lanka.

E-Commerce has changed how economies work (Image credits: Altitude Labs)
E-Commerce has changed how economies work (Image credits: Altitude Labs)

The report stated that IT related activities have seen a significant growth of 21.1% in 2015, compared to just 9.3% the year before. Statistically our country has managed to double its growth in terms of IT and the infrastructure required to facilitate it. With the ever growing developments that are happening around us, it is safe to assume that this growth is to increase in the years to come.

A significant portion of this growth can be accredited to E-Commerce which has managed to change the entire way on how the economics of the country work. This whole revolution has managed to produce an ever-growing number of websites and mobile apps to enter into the market, essentially engaging in commercial transactions. This is not something which is only happening in Sri Lanka but across the world. These new entrants to the market have fundamentally changed how people transact. In short, they’ve disrupted the market.

So what’s the Sri Lankan government trying to do?

Last week, Minister of Finance, Ravi Karunanayake revealed that the government is planning to regulate businesses operating in the e-commerce sector. Essentially, the government wants these businesses to operate under the accounts of banks which are locally based. This is in light of the whole process where Sri Lanka is trying to come up with more flexible foreign exchange laws under the Exchange Control Act.

Minister of Finance, Ravi Karunanayake revealed that the government is planning to regulate businesses operating in the e-commerce sector. (Image credits: Huffington Post)

Minister Karunanayake also stated that the Tourist Hotels Association of Sri Lanka (THASL) has requested such regulations be imposed considering the fact that budget hotel booking apps like AirBnB have entered the Sri Lankan market. With THASL representing, many of the high-end hotels in Sri Lanka, it’s not too surprising that such a request was made. He made these statements at the 9th ‘Ease of Doing Business Forum’ organized by the Ministry of Finance.

What the Sri Lankan E-Commerce industry thinks of it

ReadMe reached out to entrepreneurs operating in the e-commerce space to gather their idea as to what they think about this whole news. We found that there is a mix of opinions amongst the local E-Commerce companies regarding the issue. Not too surprising since the minister only made a vague statement, without an action plan on how the regulations will be implemented.

Some like Sachira Fernando, CEO of NicNac, were against the Sri Lankan government introducing E-Commerce regulations. Speaking to ReadMe he said, “The government should first come up with proper technologies which support local e-commerce entities such as PayPal, easy to integrate and secure payment gateways, which we don’t have at the moment.” This point was also echoed by Dhanika Perera , CEO of Bhasha and PayHere. Speaking with ReadMe, Dhanika stated that one of the biggest reason why earnings from Sri Lankan E-Commerce businesses go abroad is due to a lack of proper payment methods available locally. This is why Dhanika says, he founded PayHere.

Sachira Fernando - Founder & CEO of NicNac was against regulations E-commerce regulations (Image credits: Malshan Gunawardane)
Sachira Fernando – Founder & CEO of NicNac was against E-commerce regulations (Image credits: Malshan Gunawardane)

Sachira went onto state the government first pursue initiatives supporting the growth of E-Commerce businesses. By bringing in legislation, to regulate them, it might take the industry backward. This is because it’s already a challenge to start an e-commerce business in Sri Lanka. To have it grow and expand into global markets is an even greater challenge. If the government doesn’t pursue initiatives to support these businesses before bringing in legislation, they could leave to more supportive startup ecosystems abroad.

“For AirBnB stopping operations in Sri Lanka is nothing. They will close down and they won’t care. Who is losing from it? Close to 7000 families which make a living by renting out their spare room. The sharing economy should be motivated, not put down like this.”– Sachira Fernando

Sachira also pointed out that companies like AirBnB and even Uber actually promote entrepreneurship in Sri Lanka. If you rented a spare room or decided to use your car to give people Uber rides, then by definition, you’d be an entrepreneur. Should the legislation be poorly written, then it’s more likely that these local entrepreneurs would suffer, rather than the foreign companies. We recently saw this happen in Dubai when the government regulations against Uber and other ride sharing services went into overdrive.

Upon further analysis of these foreign E-Commerce businesses, one could also argue that they face intense local competition. An example would be Uber, which faces competition from PickMe. To capture even a decent share of the market, they have to spend considerable amounts of money in Sri Lanka. These costs won’t be recovered overnight. Until they do, it’s unlikely these companies will see any great profits.

“Disruption is a very good thing in the 21st century. It is how economies grow and how jobs are created.” – Shakya Lahiru Pathmalal

[easy-tweet tweet=”“Disruption is a very good thing in the 21st century. It is how economies grow and how jobs are created.” – Shakya Lahiru Pathmalal” user=”@pathmalal” template=”light”]

Meanwhile, it’s the local entrepreneurs building their jobs and earning money with these services that truly win. This is the disruption in the e-commerce industry that the sharing economy has created. As Shakya Lahiru Pathmalal – CEO of Takas said when speaking to ReadMe, “Disruption is a very good thing in the 21st century. It is how economies grow and how jobs are created.” As such, the legislation needs to be well thought out by the Sri Lankan government. If not it would stifle innovation.

Shakya Lahiru Pathmalal - CEO and Co-founder of Takas stated that the government needs to very cautious in drafting legislation to regulate E-Commerce (Image credits: Malshan Gunawardane)

The above point was also echoed by Kumar Melvani, CEO of MyDeal.lk when he too spoke with ReadMe. However, Kumar’s opinion differed from the previous entrepreneurs. He believes that the Sri Lankan government trying to regulate the e-commerce industry might be a good thing. Why? Because this could potentially pave the way for consumer finance safety and other measures coming into place.

However, Kumar went on to say that the government is only listening to one side of the story. That side is those of existing large scale corporations. The other side of the story, the side of the local E-Commerce businesses has been ignored so far. Until the government does so, no form of legislation would be effective. If at all, it would be detrimental to the e-commerce industry.

Another titan in the e-commerce industry that share’s Kumar’s thoughts are Dulith Herath – CEO and founder of Kapruka. He too believed that the government needs to listen more closely and get input from e-commerce businesses. This is why some of the local E-Commerce businesses are looking at forming a collective organization. According to Dulith, the purpose of this organization would be to give the e-commerce industry of Sri Lanka a collective voice when it comes to matters such as this.

Dulith went on to state that he wasn’t against the Sri Lankan government introducing regulation to the e-commerce industry. In fact, he welcomed it. This was because E-Commerce businesses in Sri Lanka are currently registered as retailers. With the introduction of new legislation by the Sri Lankan government, it’s believed that E-Commerce businesses will get proper recognition in the legal sphere.

"<yoastmark

Additionally, Dulith disagreed with the sentiments Sachira shared with us. According to Dulith, it’s actually very easy for anyone to come to Sri Lanka and start an E-Commerce business. Once the business is setup and has captured a significant share of the market, there’s nothing technically stopping them from taking all the profits they earn abroad.

Whereas, in other industries, this is not the case. For example, in the tourism industry, no foreign business can build a hotel in Sri Lanka without following certain strict regulations. The e-commerce industry doesn’t enjoy such protections. To ensure that local e-commerce businesses stand a fighting chance and have a level playing field, Dulith believes that regulation will be necessary.

However, Dulith also agreed with the sentiments shared by Lahiru. He stated that the government should be cautious when drafting the legislation. The biggest challenge the government could face would be with taxes. For E-Commerce businesses, it might make sense to charge a smaller tax from them. But this would be a short-lived solution. It wouldn’t be long before the owners of brick-and-tar shops decide to vent their frustration at the government. As such, it’d be best for the government to take a page from the US: charge a flat tax on both E-Commerce sales as well as those from brick-and-tar shops.

So what’s next?

Irrespective of where you stand on the Sri Lankan government regulating e-commerce, one thing is clear. The government must open a dialogue and listen to the needs of local E-Commerce businesses. If the government, fails to do so, then it’s likely that this legislation would end in disaster.

Not only would the government run into a series of complicated problems but it could also stifle innovation. As a result, the legislation could be very detrimental to the entire industry. Not only for larger well-known names like Kapruka, MyDeal.lk, Takas and NicNac but also the many local entrepreneurs using services like AirBnB. Should that happen, the local E-Commerce industry will be significantly held back from growing.

As such, if the Sri Lankan government is serious about regulating e-commerce in Sri Lanka, we hope they’ll reach out to the local industry soon. If not, we might see many entrepreneurs to close up shop and some to even leave Sri Lanka.

What are your thoughts on the Sri Lankan government introducing regulations to the E-Commerce industry? Let us know in the comments below

6 COMMENTS

  1. Regulations are good if it helps the eCommerce industry grow without barriers. If SL can bring positive changes to payment methods & exporting channels I believe our awesome tech entrepreneurs can build better solutions.

  2. Disruption is a good thing when it creates new business opportunities and results and greater efficiency and lower costs for all. But not when it takes away an even playing field, just and equitable taxation, employee and consumer protection. Disruption like ‘fire’ needs to be managed.

  3. The CBSL regulations have stopped paypal being accepted in Sri Lanka for over 10 years.More regulation is for the government trying to add a VAT like TAX and collect some income from E-commerce.
    Does the lk government know how to monitor E-commerce. There are Lankans selling antiquities on eBay which are against the law to export. Will they subscribe to government regulations

  4. there seems to be no statement/comment from the minister of telecommunications and digital infrastructure on what he thinks about all these vague legistlations?

  5. If you want all the ecommerce money to stay in local bank accounts why not start by bringing paypal and stripe to Sl, cause right now any business successfully selling their products and services are only doing it with foreign paypal accounts started under their relative’s names living abroad or through foreign sites with selling platforms.

    No wonder the Kapruka ceo is disagreeing with Nicnacs comments , his business model works as long as srilanka has a closed ecommerce market. The moment the market opens up ,operates freely and ecommerce grows , people will find other ways to buy and import stuff directly or on their own, more tech businesses like nicnac will come up and his business model will collapse. Also what does he know about tech startups in sl, he is running his business comfortably with an american green card.

    As far as i see The big hotel guys (against airbnb etc since it takes away business from them giving it to small timers and regular people making a buck out of renting their rooms and houses) local taxi companies (kangaroo and pickme since uber’s fee are cheaper, its more recognised , tourists /foreigners tend to use it more because of the brand name, so they are losing business) and The Central bank governor ( known to have a vested investment in local mega companies like keels, aiteken spence and a few banks, hence wants to kill off SMES that are a threat for his business) and ofcourse our local banks (sampath bank the cheapest and most popular IPG together with other banks wants to stop paypal and stripe coming here, imagine telling paypal that they will have to have a local bank account to operate here) are behind all these new legistlations. and minister Ravi with his unsavoury reputation is the pawn being used here. wonder what Harin Fernando has to say about this. while he keeps promising stuff, this new vague statement is the opposite of everything he has promised. And although we have had double the growth on one year, it will do well to remember that it has “only been one year” and these new unfair legistlations will only discourage and stump the growth of our newfound tech entrepreneur and ecommerce culture.

LEAVE A REPLY

Please enter your comment!
Please enter your name here