Hoteliers warn additional taxes risk SL’s competitive edge in tourism

• Express disappointment in Budget 2022 for sidelining tourism industry
• Urge govt. to exempt sector from 2.5% Social Security tax on total revenue
• Seek long-term debt restructuring plan for industry players immediately

By Nishel Fernando 
Expressing the utter disappointment in Budget 2022 for sidelining the tourism industry, hoteliers warned that Sri Lanka risks losing its competitive edge in global tourism, with the proposed 2.5 percent Social Security Contribution tax adding further burden on an industry, which is trying to return to growth path after recording nearly zero revenues for the past 18 months.

“The hoteliers are already burdened with series of top line taxes and levies. The top line Social Security Contribution of 2.5 percent is definitely adding to the burden. We have been without revenues for 18 months and still continuing to maintain the employees and hotels. The industry will lose its competitive edge in marketing the destination with such taxes and there is no doubt it will affect the anticipated tourist arrival growth in the country,” the newly-elected The Hotels Association of
Sri Lanka (THASL) President M. Shanthikumar warned.

He was speaking at the 56th Annual General Meeting of THASL, held in Colombo last Friday.

In Budget 2022, the government proposed to impose a 2.5 percent tax on companies with an annual turnover exceeding Rs.120 million, titled ‘Social Security Contribution’, with effective from April next year. Shanthikumar appealed to the government to exempt the tourism sector from this proposed top line tax, given its contribution to critical foreign exchange earnings and being the worst affected industry from the COVID-19 pandemic.

“Being in the industry with dollar earnings, we need the government to consider exempting the tourism sector from the Social Security of 2.5 percent on the total revenue. At least until such times we see the tourist arrivals stabilising to the country. This is absolutely critical,” he added. 

As the tourism sector is still in very early stages of recovery after operating with no revenues for past 18 months while debt piled up, Shanthikumar pointed out that hoteliers are still struggling to maintain its operations with almost no funds to carry out the required refurbishments for their properties to welcome incoming tourists.  

“Due to the non-payment of loan capital and interest during the moratorium, the loan balances increased by 40 percent, thereby increasing liabilities. The lack of funds posing a challenge for we, hoteliers, to continue to maintain the staff, the plant and to carry out even the smallest of refurbishments to welcome tourists,” he elaborated. In order to continue to service the debt while maintaining operations, he sought the government to grant a long-term debt restructuring plan for the industry players immediately, similar to the relief granted in post-Easter Sunday attacks.

In particular, he expressed the association’s strong disappointment for not even considering the industry proposals in Budget 2022. Shanthikumar requested the government to consider  setting up a grant for struggling tourism SMEs, which are regretted with the Sri Lanka Tourism Development Authority (SLTDA) to recommence their operations.

Further, he also renewed the industry’s long-standing request to abolish the one percent top line tax charged exclusively on tourism businesses by local authorities.

“It’s totally discriminatory to charge millions of rupees from hotels by local government authorities when they only charge a measly sum of Rs.6000 annually as licence fees from every other industry. Why do hoteliers have to pay much more when the country is struggling to survive?” he questioned.