THASL eyes 2019 as recovery year

01-01-19

• Expresses confidence in industry growth, keenness to work with Govt. and calls for tax concessions

The Hotels Association of Sri Lanka (THASL) President Sanath Ukwatte, in his year-end statement, said 2018 had been a challenging year with a series of internal issues which rocked the industry but expressed hope for a more productive 2019 that would see the industry recover and grow. 

Referring to the recent political issues in the country and the resulting travel advisories issued by foreign governments, Ukwatte said he is confident Sri Lanka is now steadily on the path of recovery.

The full statement is given below. 

THASL has over 250 member hotels, and the tourism industry is responsible for providing over 350,000 direct and indirect jobs. Despite the political crisis that both the country and the industry endured during the latter part of 2018, just before the peak of the tourist season began, I’m confident of the industry’s resilience and the appeal of its diverse offerings to tourists. 

The past year saw nearly 2.3 million visitors to Sri Lanka, with tourism earnings reaching a record $ 3.5 billion. 

The hotel industry remains the only industry in the country which has the potential to turn around a sluggish economy. Earnings from tourism bring in much-needed foreign currency and investment into tourism-related projects, attracting the desired Foreign Direct Investment (FDI) into Sri Lanka. With the right investment climate and policies, the tourism industry can make the realistic promise of an economic turnaround in the shortest possible time. 

Since the dawn of peace in 2009, we have witnessed substantial investment into the industry and the country. Today, the tourism industry is estimated to be worth $ 10 billion. It is the single largest industry in the country, recording the highest investment flow and creating unprecedented job opportunities throughout the country, including the rural hinterland where talented youth are looking for improved prospects in career advancement. 

THASL requests the Government, once again, to treat the industry fairly. We further request the Government to pursue both legal and policy reforms that will recognise tourism as an export industry and establish the necessary framework for a vibrant, diverse and successful tourism industry in Sri Lanka. 

Excessive and arbitrary taxation makes it very difficult for our member hotels to compete with other regional countries. Sri Lanka’s hotels pay 22% tax on the total revenue (not profit) in addition to corporate income tax (on profit). This includes taxes such as Value Added Tax (VAT), Nation Building Tax (NBT), Tourism Development Levy (TDL), and Economic Service Charge (ESC). 

This multiple taxation on both revenue and profit creates an environment that is unfavourable for Sri Lanka’s hotels and thereby makes our tourism offerings uncompetitive in comparison to our neighbours. This is our strongest disincentive in developing the tourism industry to new vistas of achievement.

In addition to the existing revenue based tax burden, the tourism industry is also faced with municipalities and local governments threatening to charge an additional 1% tax on total revenue. We believe this tax is entirely unrealistic, discriminatory and arbitrary, as it only targets the hotel industry. Hotels already pay annual municipal and local government rates to cover municipal and local government services. We request the Government to abolish all such arbitrary taxes and adopt a simplified and fair tax policy similar to that applicable in other countries in the region. This is an urgent priority.

 THASL members are also faced with severe competition from the informal sectors. These sectors do not contribute by way of taxation to the national economy and are not subject to the same regulations as our hotel members, despite also providing tourist accommodation. This creates an unfair price advantage in favour of the informal sector and negatively impacts regulated, tax-paying hotel operators, to the grave detriment of the tourism industry in general and indeed, the national economy. 

A couple of months ago, THASL participated in pre-budget consultations with the Ministry of Finance. We were pleased with these consultations where we were able to present a series of recommendations aimed at levelling the playing field in regard to tax fairness and creating a competitive and equitable environment for the hotel industry. 

With 60% of the world’s population living only one to five flight hours away from Sri Lanka, we are confident of achieving the Government’s target of three million tourist arrivals in 2019. However, this would require the Government committing to and implementing simple structural adjustments we have proposed, such as competitive and simplified taxes, and visa-free travel to selected countries together with a targeted, global marketing campaign. These are essential ingredients in a comprehensive strategy. 

With effective marketing and proper regulation, we are confident that Sri Lanka would be able to reach its tourism targets. Among the countries in the region, Thailand tops the list with 38 million tourists, Malaysia 33 million, Singapore 18 million, Vietnam 14 million, the tiny island Bali 6.5 million, and Cambodia 7 million tourists, in 2018. Sri Lanka’s tourism undoubtedly has great potential to cater to a cross-section of the market with types of products appealing to today’s discerning traveller.

We would like to see the Government take some meaningful steps in the New Year to relieve us of uncompetitive tax burdens and encourage the sector to enhance and grow. We are hopeful that the Budget for 2019 will accommodate our requests in order to realise and strengthen the inherent potential of the industry. 

It is absolutely vital that we have the proper incentives and conditions in place, similar to those in other countries in the region, for us to exploit the opportunities available. Our industry provides gainful and satisfying avenues of employment, combined with valuable opportunities for training of talented youth not only in Colombo and its environs, but throughout the rural heartland of the country. 

What we urge is due recognition of the potential of our industry, with a view to ensuring that the industry performs to its maximum capacity. We are confident that it can be a major contributor to the economic development of our nation. 

We would urge that, if these timely responses are forthcoming on the part of the Government authorities, the tourism industry is poised for a quantum leap this year. Our industry eagerly looks forward to the opportunity of partnering with the Government in developing tourism in Sri Lanka to new levels, and we have every confidence that we shall succeed in this endeavour.

We look forward to 2019 with optimism and excitement.