The President addressed concerns raised by the IT industry regarding VAT implications and announced a strategic shift towards fostering research and development.

The President clarified that IT services provided to entities outside Sri Lanka, with payments received in foreign currency, would be exempt from income tax. While acknowledging the impending VAT increase to 18%, he assured the IT sector of government support. The increased VAT revenue, estimated at Rs. 1.5 billion, will be earmarked for research initiatives, including a substantial allocation for AI research.

President Wickremesinghe stressed the need for a robust science and technology foundation, announcing the establishment of the Digital Transformation Agency, AI Centre and Digital Technology and Innovation Council. These entities will play a pivotal role in shaping policy, driving innovation and commercializing technological advancements.

Highlighting the critical role of education, the President announced plans to expand existing universities and establish new ones focused on technology and science. Cooperation with foreign partners, including the establishment of an IIT campus in collaboration with India, underscores Sri Lanka’s commitment to becoming a global technology hub.

The President also touched upon the agricultural and energy sectors, outlining plans for technological integration to boost productivity and embrace renewable energy sources. Collaborations with countries like Germany and Australia further emphasize Sri Lanka’s commitment to green technology and global partnerships.

In a bold move to attract foreign investments, President Wickremesinghe revealed upcoming changes to the investment landscape, with the replacement of the Board of Investment (BoI) and the Export Development Board (EDB) by the Economic Commission. The new structure aims to streamline investment processes and encourage international trade.

In concluding his address, President Wickremesinghe called for bipartisan support, urging both the government and the opposition to unite in achieving a scientific and technological revolution. He expressed gratitude for the opportunity to lead the Ministry of Science and Technology once again, emphasizing his commitment to steering Sri Lanka toward a brighter future.

Following is President Wickremesinghe’s address in Parliament today;

In fact, I asked them for a note from the ministry and they say how your service providers such as Pickme, Uber, Daraz, etc. do not fall within the ambit of it sector and they were not exempt from income tax or VAT. So I’d like to also say a few more words and I can finish my speech now. There has been questions as to VAT being applied at 18% on this whole sector. I’d like to say IT services provided to persons outside Sri Lanka for which payments are received in foreign currency are exempt from income tax. Supply of IT services was liable to wet until 31st December 2019 and exempt from wet only from 1 January 2020. IT services will be liable for VAT effective from 1st January 2024 by the new amendment. How we are making it services viable for VAT will not become a burden to the industry since those I companies are export oriented and export of IT services is a zero rated supply. Furthermore, even in India, the GST rate for all kinds of IT software supply services products are 18%. Now, we have decided as a policy to impose increase the VAT up to 18%. Then it must apply to all sectors. You can’t exempt some sectors and others.

Now, many in the IT sector said they can go ahead, provide us certain assistance are given to them. Some of the others are complaining, but they have always been complaining. When we tried in 2003 to bring Tata in, they all complained, but they have to look to digitalize revenue collections and the home affair services. Now they said they can do it. Up to date we have nothing. Now we are piggybacking on ADAR system again after 20 years. Then. Similarly, when we started this in 2015, there was a big debate as to whether you need foreign personnel. And this was the biggest debate, not how we increase it. And finally, there were no foreign personnel and half the people who shouted are now leaving the country. We’re having a serious dearth of people. So what we are doing now is to ask if any company wants people from abroad, we’ll allow it. We are going to train more people, but that will not in fact resolve the issue of trained people. Experienced people have gone out. So if a company wants the foreign personnel, we’ll let them come in. Whatever we have collected by increasing to 18% will come back to the sector because there’s one and a half billion rupees kept aside for research on just on AI and another 8 billion for also and other technological research, of which I am sure this sector, should take anything from one to 2 billion. So it’s about three and a half billion what you are doing is we are shifting the emphasis onto research and helping research because if you look at the potential of the IT industry, even SLASCOM used to talk of 5 billion. We haven’t hit two and a half billion yet and I think you can go up to about 7 billion. So wherever they want to go ahead, the government is prepared to support them and we are moving very fast towards the digitalization and we will be looking in the next two, three years to do that. We’ll go piggyback on India and then let us develop it.

So the whole digital sector will expand which you might pay 18% VAT but you are going to expand here in Sri Lanka and that’s the development. Then we have to send in the personnel who are required and AI, especially the government has focused on it because AI is the future and we should expand on artificial intelligence. Otherwise we’ll be competing with Myanmar to have low income, low wage manufacturing. So we are having. The new agency will be the digital transformation agency and they will have policy work. They won’t get like ITCA, they won’t get involved in project management. And this was built and I think Mr. Eran Wickramaratne MP knows this was to be for ten years and then they kept extending it. But you need a new agency and within that will be the AI centre. The other one is the digital Technology and Innovation Council which will look at commercialising innovations in the field of technology. They are the people who lose the 8 billion of which part anyway can go to IT part for the others. So they will certainly work on this field. The National Science foundation will be pure research, will make some of the monies available for National Science foundation. So there’s money available. It’s nine and a half billion rupees is available this next year for research.

We had never made that much of money available. For the first time that money is being available. We have to become a country that has a strong science and technology base. We cannot survive without it. Connected to that is the agriculture and modernization. Agriculture gain is increasing productivity and applying of technology. We are going to apply technology and part of this money is available for the application of technology in agriculture. We have a limited land space, land available. So we have to maximise. To maximise output we must also use technology. So this is the second area and we are bringing the University of Agro Technology which will update the research institutions and work to back up the modernization scheme in Sri Lanka. We are combining the private sector and the public sector together. In most areas our productivity is low, whether it be tea or many or whether it be paddy or others. So we have to increase productivity. Then there are problems, as you know, with rubber. There are many issues that we have to resolve on rubber. So that’s the second one.

Third area we are looking at is the renewable energy. Sri Lanka has vast potential for renewable energy. We are only looking at net zero for Sri Lanka supply, but that’s not what we had. Look at what is the total potential available? They are talking about 30 to 40 gigawatts just on wind. The minister told me the ministry has estimated about 200 gigawatts on solar, but that is without rooftop solar, then that will virtually double it. So we have all this energy which we don’t really require. We can sell some to India on connectivity, but we have to go in for green hydrogen and green ammonia, which will also help Colombo and as a port because green hydrogen will be used by the shipping industry. So we have this tremendous potential which we have to use on which we have to do research and be ahead. I have already spoken with Germany on helping us on green technology. Similarly with France as to how they have established green industries. We are also having Australian private sector advising us. Australia wants to be a green hydrogen superpower. So we are working with them. We have the potential to export. India can make more than us, but India can never export. It’s needed locally. China can make more than us, they need it locally. But we are one of the countries that can export renewable energy. And then we must also apply industry four technologies now for our manufacturing, the best example is 3d printing. 3d printing is going to come into effect. So we have to be ahead of that. There are so many other areas of technology that we have to get into. We must somehow get into this. In the next five, six years we have to establish yourself. And in the first decade from starting, say, by 2035, we should be known as a leading country in technology. Our survival depends on it. In the old days we had it. We were the top country in engineering.

No one could beat us on engineering. Our structures were sometimes better than that of the Egyptians who built pyramids. But we didn’t build pyramids. We built Dagabas, which was semi-circular, which was far more difficult because you built the whole hydraulic system. You built things like Sigiria. I mean, look at the combination that we did of engineering. No other country can show all that we had. The only one who had that would be China, China and us. And we were a small country. We have the potential. Look at the number of students who pass the A/L exams. But they can’t go anywhere. So we have to have more places. In addition to the universities that are existing, we’ll be starting some more new universities. The KDU will expand and they’ll start two affiliated universities. That is the University of Kurnagala and the University of Seetawaka.

Then in addition, the NSBM will become a university. We are talking with India of establishing campus of the IIT, Chennai which can become independent institution in time to come. These universities are for technology, for science and technology. They won’t have any other subjects, maybe management. Then we are looking at a third university to be established with foreign assistance. We are talking of that. So we’ll have. Government would have at least got finally three, four universities going plus with Indian one, five. Then there’ll be other private, non-government universities. So we want to ensure that the universities expand. We are making amendments to the law which all of us agree to allow private, non-government universities to come in, to allow foreign universities to establish their campuses. But certainly the emphasis will be on management and on technology. So that’s the area. In this way we hope to produce more and more people and that the existing universities will expand their numbers in this field. So we are setting the ground for a transformation into science and technology. Our biggest transformation we had in the modern days was basically under President Jayawadene when we did Mahawelli and we also did two free trade zones. I think what we are going to do now will be much bigger than what will happen at that time. That’s why we want everyone to cooperate with us. Whether you are in the opposition or whether you are in the government. Whether you want to join me or not, join me. Let’s all get together and get a scientific, technological revolution in this country. Then, in regard to investments, we’ll bring the laws in which will make the changes. Sometime in January, February, the BoI and EDB will be scrapped.

It will be replaced by the Economic Commission which is to draw investment into the country in all fields. And it will be done quite differently from what we are going to do now. I will brief the members of the house at that time. Then the industrial estates. The investment zones will be separated. And there be an investment infrastructure corporation which will set up the investment promotion zones. We will have the private sector, the government to do it. All of them will be registered as public companies. And then you will provide the services. The corporation will oversee and regulate these investment zones. There will be the international trade Centre also, which will deal with international trade. So those three will be connected to each other and that is basically what going to be the new structure for foreign investments. We are looking at the Port Commission act to make it into financial city. We’ve got the draught we’ve got from Sherman and Sterling. They’ve updated it. They are doing the regulations.

So all of you will be able to go through the draughts and look at the new one, which will make provision for offshore financing. I thought I will inform you of what the government is hoping to do and we want to start next year. And I hope we can depend on all your cooperation, whether in the government or in the opposition, to go ahead to implement this. I am happy, in a way that I’ve been able to do this because one day when I was Minister of Industries, President Premadasa summoned me and said, why don’t you take over the Ministry of Science and Technology? So I told him, sir, I am a lawyer, I am not a scientist. He said, the matter, you take it. And I was able to work a lot there and I’m happy that I have the opportunity again of holding the same ministry.

PMD