Talks to tax thriving informal tourism sector

• SLTDA says new mechanism may need certain amendments to law  
• Industry expert suggests online platforms to work only with registered entities
• Tourism Minister insists informal sector needs to be brought under tax net
• Eran says Govt. looks to creatively tax booking platforms

By Charumini de Silva

To mitigate disruptions by the rise of digital platforms and startups in the hospitality industry, the tourism authorities are now having discussions with booking agencies to introduce a mechanism to collect taxes from the informal sector and standardise this thrust sector of the economy.

“We are now having discussions with leading online travel agencies (OTAs) to set up a mechanism to collect taxes from the informal sector,” Sri Lanka Tourism Development Authority (SLTDA) Director General Malraj Kiriella told the Daily FT.

Emphasising that there are many practical issues in getting the informal sector absorbed into the formal industry, he pointed out that this would perhaps need certain amendments to the law.

“There are certain firms which can be immediately absorbed into the formal sector and some are not meeting the criteria to even register them. There are many practical issues in standardising these entities,” he pointed out.

Noting that every tourist enterprise and tourist service falling within the classification shall be registered under the SLTDA, he said in addition to the hotels  21 codes on home stay units, bungalows, apartment hotels, small luxury hotels, eco tourist lodges, tourist camping and caravanning sites, ayurvedic tourist hotels, heritage tourist hotels, independent tourist restaurants, travel and tour services operations, tour guiding services, vehicle safari operations, tour vessels operations, elephant back safari, tourist shops, spice gardens, spa and wellness centres, water-based adventure activities, tourist theme parks and ayurvedic tourist healthcare centres are being reviewed by the Legal Draft Division to be gazetted in the next few months.

Kiriella assured an Enforcement Unit under the Legal Division to take action against hotels that disregard the latest regulations would be set up before the end of the year.

While many entities in tourist populated areas, including Hikkaduwa, Unawatuna, Ella, Sigiriya and Anuradhapura, have been absorbed into the formal sector, he asserted that several firms were currently in the process of fulfilling the documentary requirements.

Citrus Waskaduwa Hotel Chairman Prema Cooray called on the authorities to meet the challenges in a pragmatic manner by some means of regulation.

“A month ago TripAdvisor has taken a view that they will only work with registered places. So we are trying to bring down those booking agencies to work with the Government to ensure they will only work with the SLTDA-listed places,” he added.

Claiming that the informal sector enjoys an unfair advantage over the formal sector, he stressed the segment should be brought into the net of formal taxation and levies in such a manner as to allow the sector’s growth to continue in line with world travel trends.

Traditional travel distribution in which high street travel agencies played a dominant role was disrupted with online travel agencies and direct distribution through booking agencies and social media acquiring a key role. 

He said the concept of home stays when travelling was not new but dated back many centuries, but the technological revolution has accelerated this into a fast-moving and easily accessible global phenomenon.

“The hospitality of our people is natural. Foreigners like the friendliness, good local food, but it is unfair of them not to pay taxes. We are not saying that they should pay taxes as high as 30% but a nominal percentage. They need to understand that it is the market share the formal sector built over the years keeping in line with all the standards and regulations of the Government,” Cooray added.

Admitting there was an informal sector that is competing side-by-side with the formal sector, Tourism Development Minister John Amaratunga said it was common in every country, adding that tourism officials and the ministry secretary have now embarked on a program to register the unregistered entities to bring them within the tax network.

“Tourism remains a favoured sector of our economy. But the informal sector must pay taxes and look into the regulations in order to ensure that basic standards are maintained. At the end of the day we want to get the numbers to Sri Lanka and earnings to come into the country,” he asserted.

Speaking at the 2018 pre-Budget forum organised by the Daily FT and the Colombo University MBA Alumni Association on Wednesday, State Finance Minister Eran Wickramaratne noted that the country continued to be dependent on tourism industry revenue but said debates on Airbnb and other booking platforms needed to be held within the industry and once a consensus was reached it should tell the Government what steps to take. The Government would look to “creatively tax” booking platforms.