A better focus towards a digital economy to revive business landscape

ACCA members have always played a key role in assessing the financial implications and risks faced by Sri Lanka in any crisis and now with the COVID-19 pandemic, they are helping to guide organisations through this challenge and playing a critical part in business continuity and planning for recovery. 

ACCA Member and KPMG Sri Lanka Partner and Audit Head Suren Rajakarier gave his insights about the pandemic’s impact on businesses in Sri Lanka and the role that the governments can play to revive Sri Lanka’s business landscape.

“Sri Lanka can avoid a catch-22 situation by making a strong push towards a digital economy and provide a stimulus to revive the economy. However, deficit financing will be a challenge with tax revenues already falling. 

Currently, taxes account for nearly 90 percent of government revenue and the largest contribution comes from VAT. Before the pandemic, the government announced sweeping tax cuts to revive the economy impacted by the 2019 Easter attacks, to bring about a consumption-led economic revival that would have offset the revenue losses. 

Unfortunately, the pandemic hit us and the reduced economic and business activity during and after the COVID-19 outbreak is now bound to result in lower direct and indirect taxes. With the government announcing grace periods for the payment of taxes, such as VAT, Stamp Duty, WHT and other income taxes, it will make a further dent in revenue in the short term. 
However, the government has to continue spending, support public health services and provide financial support for households and businesses.”

The World Bank has pledged a US $ 128 million loan to help combat the pandemic while China will lend US $ 500 million but with Sri Lanka having considerable debt repayment commitments, averaging US $ 5 billion until 2022 and global liquidity conditions tightening, the government will look to more domestic borrowings and deferral of payments. 

As such, Rajakarier is of the firm view that the government must think beyond the stimulus, as the pandemic will change the global economy forever. 

With the behaviour and consumption patterns having shifted the world over, with the retailers forced to go online, healthcare providers turning to online services more than ever before and companies transforming processes to be digital in all key functions, the economy is starting to make that slow shift towards a digital economy. 

“The unprecedented surge in remote working means that the government departments need to move the delivery of their services across to digital channels, computers and mobile devices.  Many government departments need to accelerate changes, where every step that’s needed a face-to-face human interaction needs to seek alternatives and deliver them in a matter of hours or few days. 

This calls for them to invest in emerging technologies at a pace, as well as their applications for delivering customer-facing services. A digitally-enabled public service will improve efficiency, transparency and this will play a critical role towards improving business confidence.” 

“To further enhance the extent of such transformation, the government will also have to take the lead,” continued Rajakarier. 

“Governments can do this by providing the infrastructure for e-commerce and ensure that entities do not break the circular flow of economic activity by cost reduction and pay cuts that will negatively affect consumption. 

Ease regulatory procedures to pave the way for businesses to generate more turnover and profits to retain their employees and pay their salaries, repay banks once the debt moratorium period ends and also contribute to the state by way of taxes.”

“Overall, the coronavirus is an opportunity for the public sector to transform their activities to a digital platform that will improve the overall ability and provide good-quality services to better respond to changes in the environment and policies in the future. A digital push in the public sector will only serve to complement and ensure that the economy is better placed to recover.”