Higher levy on foreign purchases through payment cards in place of 2.5% stamp duty

The Sri Lankans who have subscriptions on foreign video streaming services such as Netflix and like to order things online from digital market places such as ebay and AliExpress are set to pay more as the government has slapped a 3.5 percent levy on the value of such transactions.

The new levy will replace the current stamp duty of 2.5 percent charged on every credit card transaction conducted with a foreign party.

“Consequent to the proposals made in the budget 2019, it is expected that the levy on foreign commercial transactions will be imposed in place of this stamp duty,” stated a tax note released by Ernst & Young Sri Lanka on the amendments passed to the Value Added Tax, Nation Building Tax and Finance Act, on October 23.   

Earlier the budget speech proposed to introduce the Nation Building Tax of 3.5 percent on foreign transactions made by using debit or credit cards and it was to come into effect from June 1 onwards.

Despite the amendments were passed in Parliament, the effective date of the new levy will depend on when the Speaker signs the amendments.

While this new levy was introduced to bring the offshore digital services under the tax net, this proposal was met with much resistance and was identified as a slap on trade based on liberal fundamentals.

Many Sri Lankans, via credit card payments, consume foreign products and services, which are either not available in the local market or cheaper than what is available in the local market.
These products and services have greatly assisted some individuals in the development of their respective areas of knowledge and expertise or others to embark on micro-enterprises, which otherwise would not have been possible.

The financial institutions, which issue these payment cards and acquirers, are required to collect this levy on behalf of the government at the time of remittance. As the country is just two weeks away from electing a new president, it is uncertain if the policy of the new government would be the same on digital transaction conducted with
offshore entities.