Struggle to register Sri Lankan start-ups
A start-up is a newly established business that aims to bring a unique product, service or business model to market, usually with a small team. According to the Department of Census and Statistics in Sri Lanka, there are 18,029 establishments and on average 42 per cent of the establishments engaged in economic activities were reported to be not registered.
Despite Sri Lanka’s start-up ecosystem is actively growing, many entrepreneurs are reluctant to legalise their new start-ups not because their businesses are illegal, but clearly due to the complexity and weaknesses of the laws and regulations for new businesses in the country. The business registration process is complex and time-consuming. To register a business, one needs to go through institutions such as the Registrar of Companies or the Government Agent’s Office. Here, there is a series of fees, documents and licenses that need to be filled, which is a hindrance for some businesses. Additionally, mandatory payment of taxes such as income tax, VAT, NBT, EPF and ETF, coupled with high tax rates put a lot of pressure on small businesses. Also, changing tax laws and unclear tax payment processes can turn a business’s economy upside down. Regulatory systems, especially in the food, medical, commercial, manufacturing, and import-export sectors require costly and time-consuming approvals from Health Authority, BOI, and the Ministry of Foreign Trade.
Frequent changes in corporate legal policies, including investment restrictions, transaction regulations, and employee laws is a challenge, especially for new businesses. Moreover, the lack of careful control of contract laws in Sri Lanka increases the risk of errors in contracts and late payments between businesses.
The problem of late bill payments, especially for small and medium-sized enterprises (SMEs), restricts cash flow. Corruption in government institutions is an obstacle to maintaining a free and fair business environment. Corruption can lead to increased fees at some level when obtaining business regulations or licenses.
The strictness of these rules not only hinders the start-up of new businesses, but also has a negative impact on the government, which is unable to properly regulate them. If a government were to look at start-ups from a more positive perspective than the current situation and with the aim of encouraging entrepreneurs, these weaknesses could be largely mitigated, and entrepreneurs would be more likely to legalise new businesses. Through this, entrepreneurs will be able to start and legalise businesses, which are the foundation of a country’s economic growth and development.
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